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Communication of Central Bank Thinking and Inflation Dynamics
Author:
Man-Keung Tang null

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Mr. Xiangrong Yu null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 209
Language:
English
Publication Date:
01 Aug 2011
DOI:
https://doi.org/10.5089/9781463902193.001
ISBN:
9781463902193
ISSN:
1018-5941
Pages:
32
Keywords:
WP; private sector; interest rate; Information asymmetry; expectations; inflation dynamics; monetary policy; response function; inflation expectation; policy rule; communication literature; CB communications; inflation outcome; output-inflation tradeoff; price stability commitment; responsiveness inflation; Inflation; Communications in revenue administration; Central bank transparency; Inflation targeting; Supply shocks; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund