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Oxford Economic Papers Advance Access originally published online on July 8, 2008
Oxford Economic Papers 2009 61(2):395-411; doi:10.1093/oep/gpn023
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© Oxford University Press 2008 All rights reserved

Central bank communication and output stabilization

Marco Hoeberichts*, Mewael F. Tesfaselassie{dagger}, and Sylvester Eijffinger{ddagger}

*De Nederlandsche Bank and University of Amsterdam, Financial Research Department, P.o.Box 98, 1000 AB Amsterdam, The Netherlands; e-mail: M.M.Hoeberichts{at}dnb.nl
{dagger}Kiel Institute for the World Economy; e-mail: mewael.tesfaselassie{at}ifw-kiel.de
{ddagger}CentER, Tilburg University, and RSM Erasmus University and CEPR; e-mail: s.c.w.eijffinger{at}uvt.nl

JEL classifications: D83, E52, E58


  Abstract

Central banks around the world have a reputation for being secretive about their operations and market assessments. It is sometimes argued that central banks need flexibility and therefore cannot be fully transparent. We find that this explanation does not carry through in a forward-looking New Keynesian framework, where transparency about the central bank's forecasting procedures improves output stabilization. We also show that higher transparency increases optimal conservatism, as the benefits from higher transparency in terms of output stabilization are greater the more conservative is the central bank.


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