Monetary Policy Inclinations
27 Pages Posted: 11 Jun 2008
Date Written: March 2008
Abstract
We examine whether the publication of forecasts concerning the likely future conduct of monetary policy is socially desirable. Introducing a new central bank loss function that accounts for the deviations from announcements, we incorporate forecasts about future inflation and interest rates into a dynamic monetary model. We show that the announcement of future interest rates is always socially detrimental. However, medium-term inflation projections tend to increase welfare.
Keywords: central banks, commitment, ECB, Federal Reserve, policy inclinations, transparency
JEL Classification: E58
Suggested Citation: Suggested Citation
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Monetary Policy Inclinations
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