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Title:Central bank transparency under model uncertainty PDF Logo
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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