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Article
Transparency in Monetary Policy, Signaling, and Heterogeneous Information
Macroeconomic Dynamics (2014)
  • Volker Hahn, University of Konstanz
Abstract
We examine the welfare implications of two types of central-bank transparency: the publication of the information underlying the central bank's decision (decision transparency) and the release of the information that the central bank observes afterwards (postdecision transparency). Decision transparency does not make the public better informed in equilibrium. Even so, it may be socially desirable because it eliminates harmful equilibria. Postdecision transparency has ambiguous effects. It reduces output variance and the distortions stemming from heterogeneous information. In this sense, it can be used as a substitute for monetary policy. However, postdecision transparency generally raises the variance of inflation. We argue that a conflict of interests may arise between society and the central bank with regard to transparency.
Keywords
  • Monetary Policy,
  • Transparency,
  • Signaling,
  • Heterogeneous Information
Disciplines
Publication Date
2014
Citation Information
Volker Hahn. "Transparency in Monetary Policy, Signaling, and Heterogeneous Information" Macroeconomic Dynamics Vol. 18 Iss. 2 (2014)
Available at: http://works.bepress.com/volker_hahn/5/