The Non-Transparency of Timeless Rules

We address fully optimal and optimal rules under a timeless perspective. We note that the Currie/Levine representation of the optimal rule is not necessarily determinate, which leads us to a result that shows that the optimal rule may be written in multiple ways, and cannot therefore be estimated by econometricians. We show that this problem cannot be resolved by appeal to robustly optimal policy, nor by providing the private sector with the optimal conditions, as the latter may lead to loss of reputation if these are interpreted as optimal policy. We relate this to the transparency of central banks, which is coming to be regarded as the main source of commitment by such bodies. ∗Ellison acknowledges financial support from an ESRC Research Fellowship, RES-000-27-0126. Pearlman acknowledges financial support from European Commission project FP7-SSH-2007-1.