Inflation Targeting, Transparency and Interest Rate Volatility: Ditching 'Monetary Mystique' in the UK
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Authors
Nolan, Charles
Chadha, Jagjit S.
Publication Date
2004-06-16Series
Cambridge Working Papers in Economics
Publisher
Faculty of Economics
Language
en_GB
Type
Working Paper
Metadata
Show full item recordCitation
Nolan, C., & Chadha, J. S. (2004). Inflation Targeting, Transparency and Interest Rate Volatility: Ditching 'Monetary Mystique' in the UK. https://doi.org/10.17863/CAM.5195
Abstract
Monetary authorities often seem reluctant to discuss the conduct of monetary policy. There is a concern that greater openness in monetary policy-making may lead to volatility in financial markets, and specifically in interest rates. To date there is very little direct empirical evidence; however, recent changes in the monetary policy framework in the UK provide an opportunity to gain some insight on this issue. First, the authors present a model of monetary policy showing that the volatility that would otherwise occur to aggregate prices is transmitted to the rate of interest in a tightly specified nominal regime. Under some circumstances, information flows may add to volatility; if volatility is harmful, then central bankers may be right to be reticent. However, the evidence suggests that even though volatility has risen in the recent past, there is no evidence that this volatility is directly attributable to increased information flows per se.
Keywords
Classification-JEL: E42, E43, E52, Monetary regimes, Inflation targeting, Interest rate volatility
Identifiers
This record's DOI: https://doi.org/10.17863/CAM.5195
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