Can Central Bank Transparency Go Too Far? / Frederic S. Mishkin.

By:

Mishkin, Frederic S

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w10829.Publication details: Cambridge, Mass. National Bureau of Economic Research 2004.Description: 1 online resource: illustrations (black and white)Subject(s):

E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: This paper asks the question: can central bank transparency go too far? Transparency is beneficial only when it serves to simplify communication with the public and helps generate support for central banks to conduct monetary policy optimally with an appropriate focus on long-run objectives. This paper argues that some suggestions for increased transparency, particularly a central bank announcement of its objective function or projections of the path of the policy interest rate, will complicate the communication process and weaken support for a central bank focus on long-run objectives. Transparency can indeed go too far.Abstract: However, central banks can improve transparency in discussing that they do care about reducing output fluctuations . By describing procedures for how the path and horizon of inflation targets would be modified in the face of large shocks, by emphasizing that monetary policy will be just as vigilant in preventing inflation from falling too low as it is from preventing it from being too high, and by indicating that the central bank will pursue expansionary policies when output falls very far below potential, central banks can show that they do care about output fluctuations. These steps to improve transparency will increase support for the central bank's policies and independence, but avoid a focus on the short run that could interfere with the ability of the central bank to do its job effectively.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w10829 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

October 2004.

This paper asks the question: can central bank transparency go too far? Transparency is beneficial only when it serves to simplify communication with the public and helps generate support for central banks to conduct monetary policy optimally with an appropriate focus on long-run objectives. This paper argues that some suggestions for increased transparency, particularly a central bank announcement of its objective function or projections of the path of the policy interest rate, will complicate the communication process and weaken support for a central bank focus on long-run objectives. Transparency can indeed go too far.

However, central banks can improve transparency in discussing that they do care about reducing output fluctuations . By describing procedures for how the path and horizon of inflation targets would be modified in the face of large shocks, by emphasizing that monetary policy will be just as vigilant in preventing inflation from falling too low as it is from preventing it from being too high, and by indicating that the central bank will pursue expansionary policies when output falls very far below potential, central banks can show that they do care about output fluctuations. These steps to improve transparency will increase support for the central bank's policies and independence, but avoid a focus on the short run that could interfere with the ability of the central bank to do its job effectively.