IMF Working Papers

Communication of Central Bank Thinking and Inflation Dynamics

By Man-Keung Tang, Xiangrong Yu

August 1, 2011

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Man-Keung Tang, and Xiangrong Yu. Communication of Central Bank Thinking and Inflation Dynamics, (USA: International Monetary Fund, 2011) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the role of central bank communication of its economic assessment in shaping inflation dynamics. Imperfect information about the central bank's assessment - or the basis for monetary policy decisions - could complicate the private sector's learning about its policy response function. We show how clear central bank communication, which facilitates agents' understanding of policy reasoning, could bring about less volatile inflation and interest rate dynamics, and afford the authorities with greater policy flexibility. We then estimate a simple monetary model to fit the Mexican economy, and use the suggested paramters to illustrate the model's quantitative implications in scenarios where the timing, nature and persistence of shocks are uncertain.

Subject: Banking, Central bank transparency, Central banks, Communications in revenue administration, Economic theory, Inflation, Inflation targeting, Monetary policy, Prices, Revenue administration, Supply shocks

Keywords: CB communications, Central bank transparency, Communication literature, Communications in revenue administration, Expectations, Global, Inflation, Inflation dynamics, Inflation expectation, Inflation outcome, Inflation targeting, Information asymmetry, Interest rate, Monetary policy, Output-inflation tradeoff, Policy rule, Price stability commitment, Private sector, Response function, Responsiveness inflation, Supply shocks, WP

Publication Details

  • Pages:

    32

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2011/209

  • Stock No:

    WPIEA2011209

  • ISBN:

    9781463902193

  • ISSN:

    1018-5941

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