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STATIC AND DYNAMIC EFFECTS OF CENTRAL BANK TRANSPARENCY
Author(s) -
Dai Meixing
Publication year - 2016
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/boer.12031
Subject(s) - economics , output gap , discretion , transparency (behavior) , new keynesian economics , monetary policy , monetary economics , inflation (cosmology) , inflation targeting , imperfect , volatility (finance) , zero lower bound , keynesian economics , econometrics , linguistics , philosophy , physics , theoretical physics , political science , law
Using a New Keynesian framework, this paper shows that, under optimal discretion and optimal pre‐commitment in a timeless perspective, imperfect transparency about the relative weight assigned by the central bank to output‐gap stabilization generally reduces the average reaction of inflation to inflation shocks and the volatility of inflation, but increases those of the output gap in static and dynamic terms, and more so when inflation shocks are highly persistent. When inflation shocks are moderately persistent, opacity could improve social welfare if the weight assigned to output‐gap stabilization is low and this is more likely under pre‐commitment than under discretion.