Transparency: can central banks commit to truthful communication?

Julián Parra-Polanía

Borradores de Economia from Banco de la Republica de Colombia

Abstract: To evaluate whether transparency is beneficial, it is usual to assume that the central bank may choose one of two options, opacity versus truthful communication. However, the monetary policymaker may have incentives to misrepresent private information so as to reduce economic volatility by manipulating inflation expectations. Using a standard model, this paper points out the fact that if misrepresentation is included as a possible action there is no rational expectations equilibrium with inflation announcements. Therefore, even if transparency is preferred over secrecy the central bank cannot credibly commit to truth-telling, in contrast to what is commonly assumed in the literature on transparency.

Keywords: Central Bank Announcements; Monetary Policy; Transparency. (search for similar items in EconPapers)
JEL-codes: D82 E52 E58 (search for similar items in EconPapers)
Pages: 26
Date: 2012-05
New Economics Papers: this item is included in nep-cba, nep-cta, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://doi.org/10.32468/be.711 (application/pdf)

Related works:
Working Paper: Transparency: can central banks commit to truthful communication? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:711

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