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Asset Prices and Monetary Policy$
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John Y. Campbell

Print publication date: 2008

Print ISBN-13: 9780226092119

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226092126.001.0001

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Revealing the Secrets of the Temple

Revealing the Secrets of the Temple

The Value of Publishing Central Bank Interest Rate Projections

Chapter:
(p.247) 6 Revealing the Secrets of the Temple
Source:
Asset Prices and Monetary Policy
Author(s):

Glenn D. Rudebusch

John C. Williams

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226092126.003.0007

This chapter examines the unresolved debate among central bankers and researchers about the value of the direct signaling of policy intentions. The chapter is organized as follows. Section 6.2 describes the real-world direct signaling of policy inclinations by central banks and outlines some of the arguments for and against such transparency. Sections 6.3 and 6.4 examine the macroeconomic effects of direct revelation of a central bank's expectations about the future path of the policy rate in a small theoretical model, in which private agents have imperfect information about the determination of monetary policy. In particular, it focuses on the desirability of central bank transparency about the expected path of policy when the public is uncertain about the central bank's preferences and, therefore, the future path of policy. It is shown that publication of interest rate projections better aligns the expectations of the public and the central bank. Under reasonable conditions, improving the alignment of expectations helps the central bank better meet its goals, providing support for full central bank transparency.

Keywords:   central bankers, monetary policy, central bank transparency, interest rate projections

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