The Mystique of Central Bank Speak

Petra Geraats ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Despite the recent trend towards greater transparency of monetary policy, in many respects central bankers still prefer to speak with mystique. This paper shows that the resulting perception of ambiguity could be desirable. Under the plausible assumption that there is imperfect common knowledge about the degree of central bank transparency, economic outcomes are affected by both the actual and perceived degree of transparency. It is shown that actual transparency is beneficial but that it may be useful to create the perception of opacity. The optimal communication strategy for the central bank is to provide clarity about the inflation target and to communicate information about the output target and supply shocks with perceived ambiguity. In this respect, the central bank benefits from sustaining transparency misperceptions, which helps to explain the mystique of central bank speak.

Keywords: Transparency; monetary policy; communication; transparency misperceptions. (search for similar items in EconPapers)
JEL-codes: D82 E52 E58 (search for similar items in EconPapers)
Pages: 29
Date: 2005-10
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-hpe, nep-mac and nep-mon
Note: Ma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Mystique of Central Bank Speak (2007)
Working Paper: The Mystique of Central Bank Speak (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0543

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