The Mystique of Central Bank Speak
Year: 2005
Type: preprint
Abstract: Despite the recent trend toward greater transparency of monetary policy, in many respects mystique still prevails in central bank speak. This paper shows that the resulting perception of ambiguity could be desirable. Under the plausible assumption of imperfect common knowledge about the degree of central bank transparency, economic outcomes are affected by both the actual and perceived degree of transparency. It is shown that actual transparency is beneficial, while it may be useful to create the perception of opacity. The optimal communication strategy for the central bank is to provide clarity about the inflation target and to communicate information about the output target and supply shocks with perceived ambiguity. In this respect, the central bank benefits from sustaining transparency misperceptions, which helps to explain the mystique of central bank speak.
DOI: 10.17863/cam.5387
Author: Geraats, PM
Institution: University of Cambridge
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1756743451