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Title: Credibility, Transparency and Asymmetric Information in Monetary Policy

Author(s): Andrew Hughes Hallett and Nicola Viegi

Publication Date: January 2001

Keyword(s): Accountability, Policy Transparency, Political Uncertainty and Reputation

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Hughes Hallett, A and Viegi, N. 2001. 'Credibility, Transparency and Asymmetric Information in Monetary Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2671