Why Doesn't Society Minimize Central Bank Secrecy?Societies have incentives to design institutions that allow central bank secrecy. This paper illustrates these incentives in two ways. First, if society tries to constrain secrecy in one way, central bankers will try to regain lost effectiveness by building up secrecy in other ways. Therefore, we may wind up accepting types of secrecy that appear preventable because reducing them would lead to higher costs. Second, if the social trade-offs between policy objectives change over time, the public may directly prefer greater central bank secrecy so that it will be surprised with expansionary policies when it most desires them. |
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1050 Massachusetts Avenue allows central banks autocorrelation B₁ B₂ B₂² Barry Eichengreen Bo² A² Bureau of Economic central bank secrecy choose coefficients conduct surprise conducting monetary policy Cukierman and Meltzer current objectives current policy objectives current preferences da/do da/ƏB₁ dE(U degree of policy depends directly prefer discretionary equilibrium discretionary policy E(me Economic Research equilibrium levels expected value FOMC forecast of policy greater policy persistence hide their current implies inflation Intuitively John Whalley market participants members of society Michael Woodford MINIMIZE CENTRAL BANK monetary authorities NBER on-average period persistence in policy policy intentions policy objectives change policy preferences policy process policy shifts policy-makers private agents private sector Proof to Result public opinion random variable Section social objective function social welfare social welfare function society may directly SOCIETY MINIMIZE CENTRAL society would prefer surprise expansions term totally differentiating trade-off unemployment UNIVERSITY OF CALIFORNIA variability of policy σ²