Rules for Monetary Policy
Morning Coffee Videocast: Ben Bernanke and Inflation

The Mystique of Central Banking

New Economist sends us to the work of the excellent Petra Geraats:

Oesterreichische Nationalbank %u2013 Working Papers: Working Paper 123: The Mystique of Central Bank Speak: In this paper Petra Geraats argues that despite the recent trend towards greater transparency of monetary policy, in many respects mystique still prevails in central bank speak. It is shown that the resulting perception of ambiguity could be desirable. Under the plausible assumption of 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 while 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...