Work

The Advantage of Transparency in Monetary Policy Instruments

Year: 2006

Type: preprint

Abstract: Monetary policy instruments differ in tightness-how closely they are linked to inflation-and transparency-how easily they can be monitored.Tightness is always desirable in a monetary policy instrument; when is transparency?When a government cannot commit to follow a given policy.We apply this argument to a classic question: Is the exchange rate or the money growth rate the better monetary policy instrument?We show that if the instruments are equally tight and a government cannot commit to a policy, then the exchange rate's greater transparency gives it an advantage as a monetary policy instrument.

DOI: 10.21034/sr.297

Authors: Andrew Atkeson, Patrick J. Kehoe

Institutions: National Bureau of Economic Research, Federal Reserve Bank of Minneapolis, University of California, Los Angeles, University of Minnesota

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: National Science Foundation

OpenAlex ID: W1606249462

Cites: 25

Cited by: 12

Related to: 10