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| Title: | | Central bank transparency under model uncertainty  |
| Authors: | | Eusepi, Stefano |
| Issue Date: | | 2005 |
| Series/Report no.: | | Staff Report, Federal Reserve Bank of New York 199 |
| Abstract: | | This paper explores the effects of central bank transparency on the performance of optimal inflation targeting rules. I assume that both the central bank and the private sector face uncertainty about the correct model of the economy and have to learn. A transparent central bank can reduce one source of uncertainty for private agents by communicating its policy rule to the public. The paper shows that central bank transparency plays a crucial role in stabilizing the agents' learning process and expectations. By contrast, lack of transparency can lead to expectations-driven fluctuations that have destabilizing effects on the economy, even when the central bank has adopted optimal policies |
| JEL: | | E52 E31 E63 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Staff Reports, Federal Reserve Bank of New York
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