Citation

Discussion Paper Details

Please find the details for DP4408 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Central Bank Communication and Output Stabilization

Author(s): Sylvester C W Eijffinger, Marco Hoeberichts and Mewael F. Tesfaselassie

Publication Date: June 2004

Keyword(s): central bank, expectation formation, information processing and monetary policy

Programme Area(s): International Macroeconomics

Abstract: Some central banks have a reputation for being secretive. A justification for this behaviour that we find in the literature is that being transparent about operations and beliefs hinders the central bank in achieving the best outcome. In other words, a central bank needs flexibility and therefore cannot be fully transparent. Using a forward-looking New-Keynesian model, we find exactly the opposite. A central bank that is conservative improves output stabilization by being transparent about the procedures it uses to assess the economy and, especially, about the forecast errors it makes. Under certain conditions transparency by a conservative central bank also improves interest rate stabilization. We also find that higher transparency makes it optimal for the central bank to be more conservative as the benefits from higher transparency in terms of output stabilization are greater the more conservative the central bank is.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4408

Bibliographic Reference

Eijffinger, S, Hoeberichts, M and Tesfaselassie, M. 2004. 'Central Bank Communication and Output Stabilization'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4408