IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/2671.html
   My bibliography  Save this paper

Credibility, Transparency and Asymmetric Information in Monetary Policy

Author

Listed:
  • Hughes Hallett, Andrew
  • Viegi, Nicola

Abstract

The literature has often commented on, but seldom explicitly analysed, the effects of a lack of transparency in monetary policy. Using a standard theoretical model where there are also opportunities for fiscal intervention, we argue that the effects of a lack of transparency will be very different depending on whether they reflect preference or goal uncertainties: that is, whether they represent a lack of political transparency or a lack of economic transparency. The former allows the Central Bank to create and exploit a 'strategic' reputation to its own advantage; the latter does not. The test that distinguishes the two cases is whether inflation forecasts are published or not. We also find that transparency is a partial, but strictly limited substitute for accountability.

Suggested Citation

  • Hughes Hallett, Andrew & Viegi, Nicola, 2001. "Credibility, Transparency and Asymmetric Information in Monetary Policy," CEPR Discussion Papers 2671, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2671
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP2671
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. William D. Nordhaus, 1994. "Policy games: Coordination and Independece in Monetary and Fiscal Policies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 139-216.
    2. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
    3. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    4. Charles Nolan & Eric Schaling, 1996. "Monetary Policy Uncertainty and Central Bank Accountability," Bank of England working papers 54, Bank of England.
    5. Jay Bryson & Henrik Jensen & David Hoose, 1993. "Rules, discretion, and international monetary and fiscal policy coordination," Open Economies Review, Springer, vol. 4(2), pages 117-132, June.
    6. Alesina, Alberto & Gatti, Roberta, 1995. "Independent Central Banks: Low Inflation at No Cost?," American Economic Review, American Economic Association, vol. 85(2), pages 196-200, May.
    7. Ronald Fagin & Joseph Y. Halpern & Yoram Moses & Moshe Y. Vardi, 2003. "Reasoning About Knowledge," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262562006, April.
    8. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
    9. Willem H. Buiter, 1999. "Alice in Euroland," Journal of Common Market Studies, Wiley Blackwell, vol. 37(2), pages 181-209, June.
    10. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 651-678.
    11. Demertzis, Maria & Hughes Hallett, Andrew & Viegi, Nicola, 2004. "An independent central bank faced with elected governments," European Journal of Political Economy, Elsevier, vol. 20(4), pages 907-922, November.
    12. Otmar Issing, 1999. "The Eurosystem: Transparent andAccountable or ‘Willem in Euroland’," Journal of Common Market Studies, Wiley Blackwell, vol. 37(3), pages 503-519, September.
    13. Henrik Jensen, 2002. "Optimal Degrees of Transparency in Monetary Policymaking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 399-422, September.
    14. Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-397, May.
    15. Geraats, Petra M., 2000. "Why Adopt Transparency? The Publication of Central Bank Forecasts," Center for International and Development Economics Research, Working Paper Series qt0hw7h7cp, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    16. Alesina, Alberto & Wacziarg, Romain, 1999. "Is Europe going too far?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 1-42, December.
    17. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-571, October.
    18. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
    19. Hallett, A.J. Hughes, 1986. "International policy design and the sustainability of policy bargains," Journal of Economic Dynamics and Control, Elsevier, vol. 10(4), pages 467-494, December.
    20. Fischer, Stanley, 1995. "Central-Bank Independence Revisited," American Economic Review, American Economic Association, vol. 85(2), pages 201-206, May.
    21. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1997. "Central bank independence and public debt policy," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 873-894, May.
    22. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
    23. Maria Demertzis & Andrew Hughes Hallett & Nicola Viegi, 1999. "Can the ECB be Truly Independent? Should It Be?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(3), pages 217-240, September.
    24. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 195-225.
    25. Muscatelli, Anton, 1998. "Optimal Inflation Contracts and Inflation Targets with Uncertain Central Bank Preferences: Accountability through Independence?," Economic Journal, Royal Economic Society, vol. 108(447), pages 529-542, March.
    26. Hughes Hallett, A. J., 1981. "Measuring the importance of stochastic control in the design of economic policies," Economics Letters, Elsevier, vol. 8(4), pages 341-347.
    27. Swank, Otto H., 2000. "Policy advice, secrecy, and reputational concerns," European Journal of Political Economy, Elsevier, vol. 16(2), pages 257-271, June.
    28. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, April.
    29. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giovanni Di Bartolomeo & Enrico Marchetti, 2004. "Central banks and information provided to the private sector," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 57(230), pages 265-295.
    2. Kaufmann, Daniel & Bellver, Ana, 2005. "Transparenting Transparency: Intial Empirics and Policy Applications," MPRA Paper 8188, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Demertzis, Maria & Hughes Hallett, Andrew & Viegi, Nicola, 2004. "An independent central bank faced with elected governments," European Journal of Political Economy, Elsevier, vol. 20(4), pages 907-922, November.
    2. Demertzis, Maria & Hughes Hallett, Andrew, 2007. "Central Bank transparency in theory and practice," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 760-789, December.
    3. Alex Cukierman, 2002. "Are contemporary central banks transparent about economic models and objectives and what difference does it make?," Review, Federal Reserve Bank of St. Louis, vol. 84(Jul), pages 15-36.
    4. Andrew Hughes Hallett & Nicola Viegi, 2003. "Imperfect transparency and the strategic use of information: an ever present temptation for central bankers?," Manchester School, University of Manchester, vol. 71(5), pages 498-520, September.
    5. Hughes Hallett, Andrew & Demertzis, Maria, 2003. "Three Models of Imperfect Transparency in Monetary Policy," CEPR Discussion Papers 4117, C.E.P.R. Discussion Papers.
    6. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 0026, European Central Bank.
    7. Lavan Mahadeva & Gabriel Sterne, 2002. "The role of short-run inflation targets and forecasts in disinflation," Bank of England working papers 167, Bank of England.
    8. Hallett Andrew Hughes & Weymark Diana N., 2005. "Independence Before Conservatism: Transparency, Politics and Central Bank Design," German Economic Review, De Gruyter, vol. 6(1), pages 1-21, February.
    9. Chortareas, Georgios E & Miller, Stephen M, 2003. "Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?," Public Choice, Springer, vol. 116(3-4), pages 271-295, September.
    10. Hughes Hallett, Andrew, 2008. "Are independent central banks really as conservative as they like to pretend?," European Journal of Political Economy, Elsevier, vol. 24(1), pages 239-248, March.
    11. van der Cruijsen, C.A.B., 2008. "The economic impact of central bank transparency," Other publications TiSEM 86c1ba91-1952-45b4-adac-8, Tilburg University, School of Economics and Management.
    12. Berthold Herrendorf & Manfred J.M. Neumann, 2003. "The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence," Economic Journal, Royal Economic Society, vol. 113(484), pages 43-64, January.
    13. Gauti B. Eggertsson & Eric Le Borgne, 2005. "The politics of central bank independence: a theory of pandering and learning in government," Staff Reports 205, Federal Reserve Bank of New York.
    14. Ngomba Bodi, Francis Ghislain & Tadadjeu Wemba, Dessy-Karl & Soulemanou, Soulemanou, 2020. "Transparence des Banques Centrales et efficacité de la politique monétaire : quelles implications pour la Banque des Etats de l’Afrique Centrale ? [Central Bank's Transparency and effectiveness of ," MPRA Paper 116436, University Library of Munich, Germany.
    15. Gauti B. Eggertsson & Eric Le Borgne, 2010. "A Political Agency Theory of Central Bank Independence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(4), pages 647-677, June.
    16. Geraats, Petra, 2000. "Why Adopt Transparency? The Publication of Central Bank Forecasts," CEPR Discussion Papers 2582, C.E.P.R. Discussion Papers.
    17. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 26, European Central Bank.
    18. Ullrich, Katrin, 2003. "Unabhängigkeit und Verantwortlichkeit der Europäischen Zentralbank," ZEW Discussion Papers 03-65, ZEW - Leibniz Centre for European Economic Research.
    19. Geraats, Petra Maria, 2001. "Precommitment, Transparency and Monetary Policy," Discussion Paper Series 1: Economic Studies 2001,12, Deutsche Bundesbank.
    20. van der Cruijsen, C.A.B. & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency : A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research.

    More about this item

    Keywords

    Policy transparency; Accountability; Reputation; Political uncertainty;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2671. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.