Precommitment, Transparency and Monetary Policy

Arbeitspapier

Conventional wisdom says that commitment eliminates the inflationary bias of monetary policy. However, this paper shows that the inflation bias can persist even when the central bank commits. A simple model is presented in which the central bank precommits by setting the policy instrument, and the subsequent adjustment of inflation expectations is part of the transmission mechanism. Generally there is still an inflation bias, despite the absence of a time-inconsistency problem. It is caused by uncertainty about the economic disturbances to which the central bank responds. Only perfect transparency about economic information completely eliminates the inflation bias.

Show object

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2001,12

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Central Banks and Their Policies
• Subject: Geldpolitik ; Geldpolitisches Ziel ; Regelgebundene Politik ; Glaubwürdigkeit ; Inflation ; Inflationserwartung ; Risiko ; Staatliche Information ; Vollkommene Information ; commitment ; inflation bias

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Geraats, Petra Maria
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2001

Further information

• Handle: http://hdl.handle.net/10419/19550