We study the effects of Central Bank transparency on inflation and the output gap. We thus first identify a small analytical model, which concludes that transparency affects the variability of inflation and output and not their average levels. Then we examine whether this conjecture holds...

In this paper we examine the effects of private agents being less than fully rational. We examine this in the context of monetary policy, where the Central Bank may have uncertain preferences either by choice or by necessity. The new feature is that we allow the public to react in two different...

We present three different models of imperfect transparency in monetary policy: political transparency, economic transparency and constructive ambiguity. The first two show that transparency reduces the variability of inflation and the output gap but does not affect their average levels. But if...

Rational expectations are often used as a strong argument against policy activism, as they may undermine or neutralize the policymaker’s actions. Although this sometimes happens, rational expectations do not always imply policy invariance or ineffectiveness. In fact, in certain circumstances...

A popular suggestion among emerging or transition economies is to 'dollarize' or 'euro-ize'; that is to adopt the currency of a larger, richer neighbour in order to import the monetary discipline and financial stability of that neighbour. This paper examines the pros and cons of that suggestion...

This Paper analyses the interaction between a common monetary policy and differentiated labour market institutions. We develop a model of a two country monetary union. In each country, labour market institutions are distinguished by the degree of centralization in wage bargaining. In each...

This article investigates the impact on economic performance of the timing of moves in a policy game between the government and the central bank for a government with both distributional and stabilization objectives. It is shown that both inflation and income inequality are reduced without...

The paper incorporates three institutional design features into a Kydland-Prescott, Barro-Gordon monetary policy game. It shows that goal-independence and goal-transparency (an explicit inflation target) at the central bank are substitute ‘commitment technologies’ that reduce inflation and...

The literature argues that the benefits of an independent Central Bank accrue at no cost to the real side. In this paper, we argue that the lack of correlation between monetary autonomy and output variability is due to the proactive role of fiscal policy when faced with rigid monetary...

The literature has often commented on, but seldom explicitly analysed, the effects of a lack of transparency in monetary policy. Using a standard theoretical model where there are also opportunities for fiscal intervention, we argue that the effects of a lack of transparency will be very...