Credibility, Transparency and Asymmetric Information in Monetary Policy
Andrew Hughes Hallett and
Nicola Viegi ()
No 2671, CEPR Discussion Papers from C.E.P.R. Discussion Papers
The literature has often commented on, but seldom explicitly analysed, the effects of a lack of transparency in monetary policy. Using a standard theoretical model where there are also opportunities for fiscal intervention, we argue that the effects of a lack of transparency will be very different depending on whether they reflect preference or goal uncertainties: that is, whether they represent a lack of political transparency or a lack of economic transparency. The former allows the Central Bank to create and exploit a 'strategic' reputation to its own advantage; the latter does not. The test that distinguishes the two cases is whether inflation forecasts are published or not. We also find that transparency is a partial, but strictly limited substitute for accountability.
Keywords: Accountability; Policy Transparency; Political Uncertainty; Reputation (search for similar items in EconPapers)
JEL-codes: E52 E63 F42 (search for similar items in EconPapers)
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