The Mystique of Central Bank Speak
Geraats, Petra M.
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Geraats, P. M. (2006). The Mystique of Central Bank Speak. http://www.dspace.cam.ac.uk/handle/1810/131591
Despite the recent trend towards greater transparency of monetary policy, in many respects central bankers still prefer to speak with mystique. This paper shows that the resulting perception of ambiguity could be desirable. Under the plausible assumption that there is 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 but that 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.
Classification-JEL: E52, E58, D82, Transparency, monetary policy, communication, transparency misperceptions.
This record's URL: http://www.dspace.cam.ac.uk/handle/1810/131591