The Limits of Transparency

52 Pages Posted: 15 Oct 2008

See all articles by Alex Cukierman

Alex Cukierman

Tel Aviv University - Eitan Berglas School of Economics; Reichman University - Interdisciplinary Center (IDC) Herzliyah; Centre for Economic Policy Research (CEPR)

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Date Written: October 2008

Abstract

This paper probes the limits of transparency in monetary policymaking along two dimensions: feasibility and desirability. It argues that, due to limited knowledge about the economy, even central banks that are considered champions of openess are not very clear about their measures of the output gap and about their beliefs regarding the effect of policy on inflationary expectations. Consequently feasibility constraints on transparency are more serious than stylized models of the transmission mechanism would imply. In addition no central bank (CB) has made clear statements about its objective function, including in particular the relative weight on output versus inflation stabilization, the policy discount factor and the shape of losses from the inflation and the output gaps over the possible ranges of realizations of those variables.

Suggested Citation

Cukierman, Alex, The Limits of Transparency (October 2008). Paolo Baffi Centre Research Paper No. 2008-31, Available at SSRN: https://ssrn.com/abstract=1284903 or http://dx.doi.org/10.2139/ssrn.1284903

Alex Cukierman (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
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Reichman University - Interdisciplinary Center (IDC) Herzliyah ( email )

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Herzliya, 4610101
Israel

HOME PAGE: http://www.tau.ac.il/~alexcuk/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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