Central bank opacity and inflation uncertainty

Ronaldo Trogo de Almeida, Wilson Luiz Rotatori Corrêa, Helder de Mendonça () and José Simão Filho

Journal of Economic Studies, 2017, vol. 44, issue 2, 313-328

Abstract: Purpose - This paper relates to the literature on central bank (CB) transparency and inflation uncertainty. Considering that opacity is a possible source for inflation uncertainty the purpose of this paper is to test the hypothesis that increase in the dispersion of the degree of CB opacity generates higher levels of inflation uncertainty. Design/methodology/approach - In a first step, the authors present a theoretical model that shows how increase in the dispersion of the degree of CB opacity creates higher levels of inflation uncertainty. In a second step, the authors test the assumption that increase in the dispersion of the degree of CB opacity generates higher levels of inflation uncertainty in the Brazilian economy. Findings - The findings denote that CB transparency is an important tool for guiding public expectations and thus contributes to avoiding the uncertainty caused by CB preferences. Originality/value - This paper extends the theoretical model presented by de Mendonça and Simão Filho (2007) by the theoretical link between the forecast error and opacity. Furthermore, because the theoretical underpinning relies on the CB guiding inflation expectations, the authors construct an uncertainty measure based on survey of forecasts where such expectations can be inferred through the variability in the forecast error.

Keywords: Monetary policy; Uncertainty; Inflation targeting; Central bank transparency; E52; E58 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-09-2015-0161

DOI: 10.1108/JES-09-2015-0161

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