Productivity growth, transparency, and monetary policy

This study examines whether central bank transparency about views of future productivity growth contributes to stabilizing macroeconomic fluctuations. In a standard New Keynesian model, the central bank and private agents make their subjective estimates on the persistence of productivity growth. In...

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Bibliographic Details
Published in:Journal of economic dynamics & control 2013-01, Vol.37 (1), p.329-344
Main Author: Muto, Ichiro
Format: Article
Language:English
Subjects:
Central banks
Forecasts
Inflation rate
Keynesian theory
Macroeconomics
Monetary policy
Productivity
Productivity growth
Studies
Transparency
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Summary:This study examines whether central bank transparency about views of future productivity growth contributes to stabilizing macroeconomic fluctuations. In a standard New Keynesian model, the central bank and private agents make their subjective estimates on the persistence of productivity growth. In this situation, if private agents believe that the central bank's projections include forecast errors on future productivity growth, these beliefs can destabilize private agents' own expectations because the central bank's forecast errors may lead to policy mistakes in the future. Consequently, central bank transparency does not necessarily stabilize the variations of the output gap and inflation rate. The central bank should respond strongly to the inflation rate, if the impact of transparency is uncertain.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2012.08.005