Inflation Targeting, Transparency and Interest Rate Volatility: Ditching 'Monetary Mystique' in the UK
Charles Nolan () and
Jagjit Chadha ()
Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Monetary authorities often seem reluctant to discuss the conduct of monetary policy. There is a concern that greater openness in monetary policy-making may lead to volatility in financial markets, and specifically in interest rates. To date there is very little direct empirical evidence; however, recent changes in the monetary policy framework in the UK provide an opportunity to gain some insight on this issue. First, the authors present a model of monetary policy showing that the volatility that would otherwise occur to aggregate prices is transmitted to the rate of interest in a tightly specified nominal regime. Under some circumstances, information flows may add to volatility; if volatility is harmful, then central bankers may be right to be reticent. However, the evidence suggests that even though volatility has risen in the recent past, there is no evidence that this volatility is directly attributable to increased information flows per se.
Keywords: Monetary regimes; Inflation targeting; Interest rate volatility (search for similar items in EconPapers)
JEL-codes: E42 E43 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mon
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Journal Article: Inflation Targeting, Transparency and Interest Rate Volatility: Ditching Monetary Mystique in the U.K (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:9921
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