TY  - JOUR
AU  - Faust,Jon
AU  - Svensson,Lars E.O.
TI  - The Equilibrium Degree of Transparency and Control in Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7152
PY  - 1999
Y2  - June 1999
UR  - http://www.nber.org/papers/w7152
L1  - http://www.nber.org/papers/w7152.pdf
N1  - Author contact info:
Jon Faust
Johns Hopkins University
Department of Economics
Mergenthaler Hall 456
3400 N. Charles Street
Baltimore, MD 21218
Tel: 410/516-7614
Fax: 410/516-7600
E-Mail: faustj@jhu.edu

Lars E.O. Svensson
Sveriges Riksbank
SE-103 37 Stockholm
SWEDEN
Tel: +46 8 787 0107
Fax: +46 8 21 0531
E-Mail: lars.svensson@iies.su.se
AB  - We examine a central bank's endogenous choice of degree of control and degree of transparency, under both commitment and discretion. Under commitment, we find that the deliberate choice of sloppy control is far less likely under a standard central-bank loss function than reported for a less standard loss function by Cukierman and Meltzer. Under discretion, maximum degree of control is the only equilibrium. With regard to the degree of transparency, under commitment, a sufficiently patient bank with sufficiently low average inflation bias will always choose minimum transparency. Under discretion, both minimum and maximum transparency are equilibria. We argue that discretion is the more realistic assumption for the choice of control and that commitment is more realistic for the choice of transparency. A maximum feasible degree of control with a minimum degree of transparency is then a likely outcome. The Bundesbank and the Federal Reserve System are, arguably, examples of this outcome.
ER  -