Communication of Central Bank Thinking and Inflation Dynamics

Author/Editor: Man-Keung Tang ; Xiangrong Yu
Publication Date: August 01, 2011
Electronic Access: Free Full text (PDF file size is 792KB).
Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper studies the role of central bank communication of its economic assessment in shaping inflation dynamics. Imperfect information about the central bank''s assessment - or the basis for monetary policy decisions - could complicate the private sector''s learning about its policy response function. We show how clear central bank communication, which facilitates agents'' understanding of policy reasoning, could bring about less volatile inflation and interest rate dynamics, and afford the authorities with greater policy flexibility. We then estimate a simple monetary model to fit the Mexican economy, and use the suggested paramters to illustrate the model''s quantitative implications in scenarios where the timing, nature and persistence of shocks are uncertain.
Series: Working Paper No. 11/209
Subject(s): Central bank role | Economic models | Inflation targeting | Monetary policy

Author's Keyword(s): Information asymmetry | expectations | inflation dynamics | monetary policy
Publication Date: August 01, 2011
ISBN/ISSN: 9781463902193/1018-5941 Format: Paper
Stock No: WPIEA2011209 Pages: 32
US$18.00 (Academic Rate:
US$18.00 )
Please address any questions about this title to