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How Much Should Central Banks Talk? A New Argument

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  • Grüner, Hans Peter

Abstract

The openness of central bank decision making has recently received new attention in the literature. It has been argued that more openness reduces uncertainty for players on financial markets and makes future decisions more transparent. In this Paper I argue that the opposite may be the case. The argument is based on a model that studies the interaction of major macroeconomic players with the central bank. In the Paper I make a distinction between (i) uncertainty about the central banks objectives and (ii) inflation uncertainty. This distinction turns out to be crucial. I assume that the disclosure of information affects the degree of uncertainty about central bank objectives. Actual inflation uncertainty is, however, affected by these objectives and by the actions of all macroeconomic players. More uncertainty about future monetary policy leads to more wage discipline, which in turn lowers average inflation. In equilibrium, the variance of inflation may be reduced as well.

Suggested Citation

  • Grüner, Hans Peter, 2002. "How Much Should Central Banks Talk? A New Argument," CEPR Discussion Papers 3194, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3194
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    Citations

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    Cited by:

    1. Hefeker, Carsten, 2004. "Uncertainty, Wage Setting and Decision Making in a Monetary Union," HWWA Discussion Papers 272, Hamburg Institute of International Economics (HWWA).
    2. Nergiz Dincer & Barry Eichengreen, 2009. "Central Bank Transparency: Causes, Consequences and Updates," NBER Working Papers 14791, National Bureau of Economic Research, Inc.
    3. Bernd Hayo & Hans Peter Gruner & Carsten Hefeker, 2004. "Monetary policy uncertainty and unionized labour markets," Money Macro and Finance (MMF) Research Group Conference 2003 42, Money Macro and Finance Research Group.
    4. Giuseppe Ciccarone & Enrico Marchetti, 2008. "Linear Contracts, Common Agency and Central Bank Preference Uncertainty," Working Papers in Public Economics 115, University of Rome La Sapienza, Department of Economics and Law.
    5. repec:ebl:ecbull:v:5:y:2006:i:18:p:1-5 is not listed on IDEAS
    6. N. Nergiz Dincer & Barry Eichengreen, 2007. "Central Bank Transparency: Where, Why, and with What Effects?," NBER Working Papers 13003, National Bureau of Economic Research, Inc.
    7. Carsten Hefeker, 2006. "The monetary policy consequences of enlargement," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(4), pages 29-34, December.
    8. Eijffinger, Sylvester & van der Cruijsen, Carin, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers 6070, C.E.P.R. Discussion Papers.
    9. Giuseppe Ciccarone & Enrico Marchetti & Giovanni Di Bartolomeo, 2007. "Unions, Fiscal Policy And Central Bank Transparency," Manchester School, University of Manchester, vol. 75(5), pages 617-633, September.
    10. Eleftherios SPYROMITROS & Li QIN, 2006. "Central bank transparency about model uncertainty and wage setters," Economics Bulletin, AccessEcon, vol. 5(18), pages 1-5.
    11. Carsten Hefeker, 2006. "EMU Enlargement, Policy Uncertainty and Economic Reforms," CESifo Working Paper Series 1767, CESifo.
    12. Turdaliev, Nurlan, 2009. "Transparency in monetary policy: A general equilibrium approach," Economic Modelling, Elsevier, vol. 26(3), pages 608-613, May.
    13. Sánchez, Marcelo, 2009. "National prices and wage setting in a currency union," Working Paper Series 1058, European Central Bank.

    More about this item

    Keywords

    Central banks; Communication; Inflation uncertainty;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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