DP6761 Monetary Policy Inclinations

Author(s): Hans Gersbach, Volker Hahn
Publication Date: March 2008
Keyword(s): central banks, commitment, ECB, Federal Reserve, policy inclinations, transparency
JEL(s): E58
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6761

We examine whether the publication of forecasts concerning the likely future conduct of monetary policy is socially desirable. Introducing a new central bank loss function that accounts for the deviations from announcements, we incorporate forecasts about future inflation and interest rates into a dynamic monetary model. We show that the announcement of future interest rates is always socially detrimental. However, medium-term inflation projections tend to increase welfare.