Working Paper BETA #2007-23

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Title : Monetary Policy with Uncertain Central Bank Preferences for Robustness

Author(s) : Li Qin, Eleftherios Spyromitros, Moïse Sidiropoulos

Abstract : In this paper,we consider the transparency of monetary policy in a New Keynesian model with misspecification doubts. Model uncertainty allows us to identify a new source of central bank opacity, which refers to a lack of information about central bank’s preference for model robustness. Thus, taking into account this lack of transparency, we study its impacts on macroeconomic variables. We show that greater transparency can reduce the variability of output gap, inflation as well as that of their expected values.

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