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Central Bank Transparency and Disagreement in Inflation Expectations

Author

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  • Shunichi Yoneyama

    (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shunichi.yoneyama@boj.or.jp))

Abstract

This paper measures the transparency of the Federal Reserve Board (FRB) regarding its target inflation rate before its adoption of inflation targeting using data on the disagreement in inflation expectations among U.S. consumers. We construct a model of inflation forecasters employing the frameworks of both an unobserved components model and a noisy information model. We estimate the model and extract the transparency of the FRB regarding the target as the standard deviation of the heterogeneous noise in the inflation trend signal, where the trend proxies the FRB's inflation target. The results show a great improvement in transparency after the mid-1990s as well as its significant contribution to the decline in the disagreement in long- horizon inflation expectations.

Suggested Citation

  • Shunichi Yoneyama, 2021. "Central Bank Transparency and Disagreement in Inflation Expectations," IMES Discussion Paper Series 21-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:21-e-12
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    File URL: https://www.imes.boj.or.jp/research/papers/english/21-E-12.pdf
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    Cited by:

    1. Toshitaka Sekine & Frank Packer & Shunichi Yoneyama, 2022. "Individual Trend Inflation," IMES Discussion Paper Series 22-E-14, Institute for Monetary and Economic Studies, Bank of Japan.

    More about this item

    Keywords

    Central bank transparency; forecast disagreement; inflation dynamics; imperfect information;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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