Working Paper: CEPR ID: DP2354
Authors: Sylvester Eijffinger; Marco Hoeberichts; Eric Schaling
Abstract: In this paper we investigate central bank accountability by looking at the effect of transparency in a simple monetary policy game with an overriding mechanism. Monetary policy is transparent if there is little uncertainty about the central banker's preferences for inflation stabilization relative to output stabilization. Transparency enhances the central bank's accountability. The paper shows that transparency leads to a lower expected rate of inflation and less stabilization of supply shocks.
Keywords: monetary policy; central banks; transparency; accountability
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased transparency (G38) | Lower expected rate of inflation (E31) |
| Increased transparency (G38) | Less accommodation of supply shocks (E39) |
| Positive shock to central bank's preferences (E52) | Steeper reaction function (D43) |
| Negative shock to central bank's preferences (E49) | Flatter reaction function (D79) |
| Positive shock to central bank's preferences (E52) | Less conservative behavior (C92) |
| Less conservative behavior (C92) | Expanded region of independence (F54) |
| More conservative behavior (C92) | Reduced region of independence (R50) |
| Increased transparency (G38) | More conservative central bank (E58) |
| Increased transparency (G38) | Alignment of macroeconomic outcomes with central bank's preferred direction (E61) |