Productivity growth, transparency, and monetary policy

Muto, Ichiro

doi:10.1016/j.jedc.2012.08.005

Cited by 9 publications

(4 citation statements)

References 48 publications

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“…On the other hand, political transparency (CBT_1) and economic transparency (CBT_2) are of lower importance. At least, we do not find much evidence for Muto's (2013) theoretical result that transparency in the central bank's forecast is only desirable if the public assumes that the central bank's estimate of permanent productivity growth is different from their own. The estimations show that economics transparency (publishing of basic economic data, macroeconomic models, and macroeconomic forecasts) does not lead to higher unemployment variability.…”

Section: Transparency and Unemployment Volatilitycontrasting

confidence: 74%

“…Thus, the overall result of the paper is that central bank transparency regarding the output gap target is negative as it increases inflation and output volatility. Muto (2013) elaborates further on this and analyses the effect of transparency regarding productivity growth on the economy. He assumes that productivity growth has a persistent and permanent component.…”

Section: Central Bank Transparency and Unemployment Volatilitymentioning

confidence: 99%

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The unemployment effect of central bank transparency

Weber

2019

Empir Econ

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Most central banks around the world have increased their transparency in the recent past. The greater openness of central bankers manifests itself in the publication of the central banks' own macroeconomic forecasts or the disclosure of minutes and voting records of central bank committees. The intention of this policy is to build credibility and achieve better economic outcomes. The question is whether higher transparency comes at some cost, i.e. higher unemployment or higher unemployment variability. Firstly, the article shows in a theoretical model that opaqueness regarding the central bank's preferences does not necessarily lead to lower unemployment. Secondly, the paper analyses the main theoretical results of other authors, namely that transparency leads to higher wages, higher unemployment, and higher unemployment volatility. The results of the estimations show that there is no evidence that central bank transparency leads to higher wages. We can also reject the hypothesis that transparency induces higher unemployment. In fact, the analyses show that central bank transparency can reduce the detrimental effect that central bank independence has on employment. Furthermore, the estimations confirm that central bank transparency does not lead to higher unemployment volatility but can reduce it in most cases. JEL: E24, E42, E58

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Section: Transparency and Unemployment Volatilitycontrasting

confidence: 74%

Section: Central Bank Transparency and Unemployment Volatilitymentioning

confidence: 99%

The unemployment effect of central bank transparency

Weber

2019

Empir Econ

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“…This model has largely been used in terms of the role of a central bank within an economy, and the effect that central bankers' information and forecasts can have on expectations, and hence volatility. For example, in a recent paper, Muto (2013) looks at how a central bank's (noisy) forecasts on productivity can destabilise private firms' own expectations, which may in turn worsen the output gap. Geraats (2002Geraats ( , 2009) provides a nice review of this literature, and the debate over the degree of transparency a central bank should undertake.…”

Section: On the Value Of Informationmentioning

confidence: 99%

A global index of information transparency and accountability

Williams¹

2015

Journal of Comparative Economics

138

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“…The economic effects of a productivity shock depend on where the productivity shock occurs and the overall state of the economy. 18 Monetary authorities must take forecasts of productivity into account in setting monetary policy (Muto 2013). When productivity increases in a specific industry, it often reduces the prices of the goods or services in that industry, and thereby the overall price level.…”

Section: Supply Shocksmentioning

confidence: 99%

Knowledge Problems with Discretionary Monetary Policy

Boettke

Salter

Smith

2021

Money and the Rule of Law

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When questioned by US Representative Alexandria Ocasio-Cortez about the Federal Reserve's inaccurate forecasts of long-run unemployment, Chairman Powell replied, "We have learned thatyou can't identifythis is something you can't identify directly. I think we have learned its [the natural rate of unemployment] lower than we thoughtit's substantially lower than we thought" (C-Span 2019). This was a surprisingly candid admission of the limits of expert knowledge by the head of one of the most important central banks in the world. 1 The reason this matters is because the natural rate of unemployment (along with the natural rate of interest) is an important metric guiding both ordinary and extraordinary monetary policies. Chairman Powell acknowledged that we cannot directly observe or predict these natural rates in a changing economy. In more detailed remarks, Powell (2019a), referring to the tendency of economists to label these metrics as u* (natural rate of unemployment) and r* (natural rate of interest), explains, "Unlike celestial stars, these stars move unpredictably and cannot be directly observed. We must judge their locations as best we can based on incoming data and then add an element of risk management to be able to use them as guides." While both u* and r* were once thought to be roughly stable, recent changes in the economy have made it clear that they are far more 1 Chairman Powell's frankness earned him both criticism and praise. For example, Williamson (2019) writes in response, "There's a lot Powell doesn't know, and it shows." Cochrane (2019b), responding to Williamson, writes, "I would much rather have Powell's healthily acknowledged uncertainty than a PhD economist who thinks he or she 'knows' how the Phillips curve really works." 22 of use, available at https://www.cambridge.org/core/terms.

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Productivity growth, transparency, and monetary policy

Cited by 9 publications

References 48 publications

The unemployment effect of central bank transparency

The unemployment effect of central bank transparency

A global index of information transparency and accountability

Knowledge Problems with Discretionary Monetary Policy

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