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Why Central Banks Announce their Objectives: Monetary Policy with Discretionary Signalling
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
1998 (English)Report (Other academic)
Abstract [en]

This paper analyzes the use of announcements of objectives or intentions, announcements which are common in implementation of monetary policy. To analyze such announcements, this paper uses a model in which there is assymetric information over the central bank's objectives. This informational asymmetry is represented by a scholastic inflation target, upon which only the central bank can condition its actions. Thus, the scope is set for signalling, and the use of announcements can be seen as a way for a central bank to signal its type. This paper assumes that a central bank can signal at its own discretion and shows that while central banks with high inflation targets never use announcements, central banks with low inflation targets occasionally, but not always, will choose to reveal their private iformation through an announcement. A first finding is that, contrary to what a cheap-talk equilibrium suggests, the announcements may be more precise the larger the central bank's equilibrium suggests, the announcements may be more precise the larger the central bank's news. Moreover, this paper shows that the frequency of announcements is unambiguously increasing in the magnitude of the central bank's news, something that goes well in line with what is typically found in actual implementation of monetary policy.

Place, publisher, year, edition, pages
Stockholm: IIES , 1998.
Series
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 663
National Category
Economics
Identifiers
URN: urn:nbn:se:su:diva-41088OAI: oai:DiVA.org:su-41088DiVA: diva2:328255
Available from: 2010-07-02 Created: 2010-07-02 Last updated: 2010-07-02Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf