Competence Implies Credibility
نویسنده
چکیده
The (reputation for) competence of a central bank at doing its job makes monetary policy under discretion credible and transparent. Based on its reading of the state of the economy, the central bank announces its policy intentions to the public in a cheap-talk game. The precision of its private signal measures its competence. The fineness of the equilibrium message space measures its credibility and transparency. This is increasing in the competence/inflation bias ratio: the public expects a competent central bank to use its discretion more to pursue its "objective" targets than to surprise expectations and stimulate output. (JEL E52, E58)
منابع مشابه
Competence and Conservatism Shape the Transparency of Monetary Policy∗ (Competence Implies Credibility)
The credibility of monetary policy under discretion has been traditionally linked to the Central Bank’s conservatism. We show that another trait of the Central Bank (CB), her competence at doing her job, or reputation thereof, can be just as important to make her policy credible and transparent. Like conservatism, competence enhances the CB’s ability to successfully explain her intentions to th...
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