TY  - JOUR
AU  - Atkeson,Andrew
AU  - Kehoe,Patrick J.
TI  - The Advantage of Transparent Instruments of Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8681
PY  - 2001
Y2  - December 2001
UR  - http://www.nber.org/papers/w8681
L1  - http://www.nber.org/papers/w8681.pdf
N1  - Author contact info:
Andrew Atkeson
Bunche Hall 9381
Department of Economics
UCLA
Box 951477
Los Angeles, CA  90095-1477
Tel: 866/312-9770
Fax: 310/825-9528
E-Mail: andy@atkeson.net

Patrick Kehoe
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN  55480-0291
Tel: 612/204-5525
Fax: 612/204-5515
E-Mail: pkehoe@res.mpls.frb.fed.us
AB  - Is the exchange rate or the money growth rate the better instrument of monetary policy? A common argument is that the exchange rate has a natural advantage because it is more transparent: it is easier for the public to monitor than the money growth rate. We formalize this argument in a simple model in which the government chooses which instrument it will use to target inflation. We find that when the government cannot commit to its policies, the greater transparency of the exchange rate makes it easier to provide the government with incentives to pursue good policies. Hence, transparency gives the exchange rate a natural advantage over the money growth rate as the monetary policy instrument.
ER  -