The advantage of transparency in monetary policy instruments

Andrew Atkeson and Patrick J. Kehoe ()

No 297, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Monetary policy instruments differ in tightness - how closely they are linked to inflation - and transparency - how easily they can be monitored. Tightness is always desirable in a monetary policy instrument; when is transparency? When a government cannot commit to follow a given policy. We apply this argument to a classic question: Is the exchange rate or the money growth rate the better monetary policy instrument? We show that if the instruments are equally tight and a government cannot commit to a policy, then the exchange rate's greater transparency gives it an advantage as a monetary policy instrument.

Keywords: Monetary policy; Foreign exchange rates; Inflation (Finance) - Mathematical models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pke
Date: 2006
View list of references View citations in EconPapers

Downloads: (external link)
http://minneapolisfed.org/research/SR/SR297.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedmsr:297

Ordering information: This working paper can be ordered from
http://www.minneapolisfed.org/pubs/

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().