The Equilibrium Degree of Transparency and Control in Monetary Policy
1999 (English)Report (Other academic)
We examine a central bank's endogenous choice of degree of control and degree of transparency, under both commitment and discretion. Under commitment, we find that the deliberate choice of sloppy control is far less likely under a standard central-bank loss function than reported for a less standard loss function by Cukierman and Meltzer. Under discretoin, maximum degree of control is the only equilibrium. With regard to the degree of transparency, under commitment, a sufficiently patient bank with sufficiently low average and maximum transparency are equilibria. We argue that discretion is the more realistic transparency. A maximum feasible degree of control with a minimum degree of transparency is then a likely outcome. The Bundesbank and the Federal Reserve System are, arguably, examples of this outcome.
Place, publisher, year, edition, pages
Stockholm: IIES , 1999. , 31 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 669
IdentifiersURN: urn:nbn:se:su:diva-41094OAI: oai:DiVA.org:su-41094DiVA: diva2:328296