Central Bank Communication and Output Stabilization

Marco Hoeberichts (), Mewael Tesfaselassie and Sylvester Eijffinger ()

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: Some central banks have a reputation for being secretive. A justification for that behavior thatwe find in the literature is that being transparent about its operations and beliefs hinders the central bank in achieving the best outcome. In other words, a central bank needs flexibility and therefore cannot be fully transparent. Using a forward-looking New-Keynesian model, we find exactly the opposite. A central bank that is conservative improves output stabilization by being transparent about the procedures it uses to assess the economy and, especially, about the forecast errors it makes. Under certain conditions transparency by a conservative central bank also improves interest rate stabilization. We also find that higher transparency makes it optimal for the central bank to be more conservative as the benefits from higher transparency in terms of output stabilization are greater the more conservative the central bank is.

JEL-codes: G15 G20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2004-07
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Related works:
Working Paper: Central Bank Communication and Output Stabilization (2004)
Working Paper: Central Bank Communication and Output Stabilization (2004)
Working Paper: Central Bank Communication and Output Stabilization (2004)
Journal Article: Central bank communication and output stabilization (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:dnb:dnbwpp:003

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