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Central bank's two-way communication with the public and inflation dynamics

Aoki, Kosuke and Kimura, Takeshi (2008) Central bank's two-way communication with the public and inflation dynamics. CEP Discussion Papers, 899. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 899

Abstract

Using a model of island economy where financial markets aggregate dispersed information of the public, we analyze how two-way communication between the central bank and the public affects inflation dynamics. When inflation target is observable and credible to the public, markets provide the bank with information about the aggregate state of the economy, and hence the bank can stabilize inflation. However, when inflation target is unobservable or less credible, the public updates their perceived inflation target and the information revealed from markets to the bank becomes less perfect. The degree of uncertainty facing the bank crucially depends on how two-way communication works.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information: © 2009 the authors
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Series: Working Papers > CEP Discussion Papers
Date Deposited: 12 Oct 2009 15:40
Last Modified: 14 Nov 2012 10:19
URI: http://eprints.lse.ac.uk/id/eprint/25483

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