Imperfect Transparency and Shifts in the Central Bank's Output Gap Target
Niklas Westelius ()
No 415, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics
In the New Keynesian framework, the public's expectation about the future path of monetary policy is an important determinant of current economic conditions. This paper examines the impact of unobservable shifts in the central bank's output gap target on inflation and output dynamics. I show that when the degree of persistence of a shock is private information of the central bank, and policy is discretionary in nature, it is optimal for the central bank not to reveal the future expected path of the output gap target. Perfect transparency unambiguously increases inflation and output volatility and thus lowers welfare.
Keywords: Transparency; Monetary Policy; Discretion; Commitment (search for similar items in EconPapers)
JEL-codes: E5 E52 E61 (search for similar items in EconPapers)
Date: 2006, Revised 2008
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
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Journal Article: Imperfect transparency and shifts in the central bank's output gap target (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:htr:hcecon:415
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