Communication of Central Bank Thinking and Inflation Dynamics

Man-Keung Tang and Xiangrong Yu

No 2011/209, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the role of central bank communication of its economic assessment in shaping inflation dynamics. Imperfect information about the central bank's assessment - or the basis for monetary policy decisions - could complicate the private sector's learning about its policy response function. We show how clear central bank communication, which facilitates agents' understanding of policy reasoning, could bring about less volatile inflation and interest rate dynamics, and afford the authorities with greater policy flexibility. We then estimate a simple monetary model to fit the Mexican economy, and use the suggested paramters to illustrate the model's quantitative implications in scenarios where the timing, nature and persistence of shocks are uncertain.

Keywords: WP; private sector; interest rate; Information asymmetry; expectations; inflation dynamics; monetary policy; response function; inflation expectation; policy rule; communication literature; CB communications; inflation outcome; output-inflation tradeoff; price stability commitment; responsiveness inflation; Inflation; Communications in revenue administration; Central bank transparency; Inflation targeting; Supply shocks; Global (search for similar items in EconPapers)
Pages: 32
Date: 2011-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=25199 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2011/209

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().