STATIC AND DYNAMIC EFFECTS OF CENTRAL BANK TRANSPARENCY

Meixing Dai ()

Bulletin of Economic Research, 2016, vol. 68, issue 1, 55-78

Abstract: type="main">

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.

Date: 2016
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Working Paper: Static and Dynamic Effects of Central Bank Transparency (2016)
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