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Central Bank's Two-Way Communication with the Public and Inflation Dynamics

Kosuke Aoki and Takeshi Kimura

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Using a model of island economy where financial markets aggregate dispersed information of the public, we analyze how two-way communication between the central bank and the public affects inflation dynamics. When inflation target is observable and credible to the public, markets provide the bank with information about the aggregate state of the economy, and hence the bank can stabilize inflation. However, when inflation target is unobservable or less credible, the public updates their perceived inflation target and the information revealed from markets to the bank becomes less perfect. The degree of uncertainty facing the bank crucially depends on how two-way communication works.

Keywords: Monetary policy; central bank communication; inflation target (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Working Paper: Central Bank's Two-Way Communication with the Public and Inflation Dynamics (2009) Downloads
Working Paper: Central bank's two-way communication with the public and inflation dynamics (2008) Downloads
Working Paper: Central bank's two-way communication with the public and inflation dynamics (2008) Downloads
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