Uncertainty and fiscal policy in a monetary union: Why does monetary policy transmission matter? ¬リニ

a r t i c l e i n f o In this paper, we develop a monetary-fiscal game in a monetary union with uncertainty due to imperfect transparency about the central bank's preferences. The objective is to investigate the macroeconomic effects of this uncertainty by explicitly taking into account the role of the monetary policy transmission mechanism. We first consider the case of symmetric monetary transmission in the monetary union and show that if the transmission mechanism is not too strong, monetary uncertainty may be beneficial in terms of macroeconomic performances and stabilisation. We then allow for some transmission asymmetry among the member countries and show that the beneficial impact of monetary uncertainty is exacerbated for countries that are more sensitive to the common monetary policy. More importantly, our findings suggest that the central bank's communication about its preferences could represent a specific instrument to influence inflation expectations and thus macroeconomic outcomes in the member countries. Monetary transparency has been a constant topic in the macroeconomic debates for a few decades. Despite a very vast literature starting with the seminal work of Brainard (1967) there is no clear and unitary vision stating the implications of central bank transparency on the economic agents' behaviour and economic outcomes. 1 The defenders of the idea of perfect monetary transparency suggest that it allows the private sector to better anticipate and understand the signals provided by the monetary policy. The effectiveness and credibility of monetary policy are thus reinforced (Blinder et al., 2001; Ferguson, 2002) as well as the capacity of the Central Bank to use discretionary policies (Kuttner and Posen, 2001). Opposite views underline the positive effects of some central bank opacity. Thus, Cukierman and Meltzer (1986) show that perfect transparency is not optimal as only an unanticipated monetary policy can be effective. If we consider that the agents' capacity to absorb and understand the information provided by the central bank is limited, a high degree of transparency could generate confusion as a consequence of an information overload (Van der Cruijsen et al., 2010) leading to counterproductive effects like for instance an excessive volatility on financial markets (Jensen, 2002). 2 A series of papers has focused on the effects of central bank transparency on labour markets. Turdaliev (2009) studies the welfare effects of central bank transparency by making a distinction between workers and producers. He shows that, under certain conditions, workers are …