Post by Sapphire Capital on Nov 11, 2008 22:25:12 GMT 4
The Limits of Transparency
Alex Cukierman
Tel Aviv University - Eitan Berglas School of Economics; Tilburg University - Center for Economic Research; Centre for Economic Policy Research (CEPR)
October 2008
Paolo Baffi Centre Research Paper No. 2008-31
Abstract:
This paper probes the limits of transparency in monetary policymaking along two dimensions: feasibility and desirability. It argues that, due to limited knowledge about the economy, even central banks that are considered champions of openess are not very clear about their measures of the output gap and about their beliefs regarding the effect of policy on inflationary expectations. Consequently feasibility constraints on transparency are more serious than stylized models of the transmission mechanism would imply. In addition no central bank (CB) has made clear statements about its objective function, including in particular the relative weight on output versus inflation stabilization, the policy discount factor and the shape of losses from the inflation and the output gaps over the possible ranges of realizations of those variables.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1284903_code962400.pdf?abstractid=1284903&mirid=3
Alex Cukierman
Tel Aviv University - Eitan Berglas School of Economics; Tilburg University - Center for Economic Research; Centre for Economic Policy Research (CEPR)
October 2008
Paolo Baffi Centre Research Paper No. 2008-31
Abstract:
This paper probes the limits of transparency in monetary policymaking along two dimensions: feasibility and desirability. It argues that, due to limited knowledge about the economy, even central banks that are considered champions of openess are not very clear about their measures of the output gap and about their beliefs regarding the effect of policy on inflationary expectations. Consequently feasibility constraints on transparency are more serious than stylized models of the transmission mechanism would imply. In addition no central bank (CB) has made clear statements about its objective function, including in particular the relative weight on output versus inflation stabilization, the policy discount factor and the shape of losses from the inflation and the output gaps over the possible ranges of realizations of those variables.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1284903_code962400.pdf?abstractid=1284903&mirid=3