Communication of Central Bank Thinking and Inflation Dynamics

 
Author/Editor: Tang, Man-Keung ; Yu, Xiangrong
 
Publication Date: August 01, 2011
 
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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 | Central banks | Inflation targeting | Mexico | Monetary policy | Transparency

Author's Keyword(s): Information asymmetry | expectations | inflation dynamics | monetary policy
 
English
Publication Date: August 01, 2011
Format: Paper
Stock No: WPIEA2011209 Pages: 32
Price:
US$18.00 (Academic Rate:
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