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Transparency: can central banks commit to truthful communication?

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  • Julian A. Parra POlanía

Abstract

To evaluate whether transparency is beneficial, it is usual to assume that the central bank may choose one of two options, opacity versus truthful communication. However, the monetary policymaker may have incentives to misrepresent private information so as to reduce economic volatility by manipulating inflation expectations. Using a standard model, this paper points out the fact that if misrepresentation is included as a possible action there is no rational expectations equilibrium with inflation announcements. Therefore, even if transparency is preferred over secrecy the central bank cannot credibly commit to truth-telling, in contrast to what is commonly assumed in the literature on transparency.

Suggested Citation

  • Julian A. Parra POlanía, 2012. "Transparency: can central banks commit to truthful communication?," Borradores de Economia 711, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:711
    DOI: 10.32468/be.711
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    Cited by:

    1. Gustavo Nicolás Páez, 2015. "Prediciendo decisiones de agentes económicos: ¿Cómo determina el Banco de la República de Colombia la tasa de interés?," Documentos CEDE 12567, Universidad de los Andes, Facultad de Economía, CEDE.
    2. Freddy H. CASTRO, 2012. "Senales de política monetaria y movimientos en la estructura a plazo de la tasa de interés en Colombia," Archivos de Economía 9908, Departamento Nacional de Planeación.

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    More about this item

    Keywords

    Central Bank Announcements; Monetary Policy; Transparency.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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