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Central Banking, Monetary Theory and Practice

Essays in Honour of Charles Goodhart, Volume One

Edited by Paul Mizen

Celebrating the contribution that Charles Goodhart has made to monetary economics and policy, this unique compendium of original papers draws together a highly respected group of international academics, central bankers and financial market regulators covering a broad range of issues in modern monetary economics. Topics discussed include: central bank independence; credibility and transparency; the inflation forecast and the loss function; monetary policy experiences in the US and the UK; the implications of Goodhart’s Law; the benefits of single versus multiple currencies; and money, near monies and credit.
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Chapter 5: Six practical views of central bank transparency

Adam S. Posen


Adam S. Posen 1. INTRODUCTION In the span of fifteen years, central bank transparency has gone from being highly controversial to motherhood and apple pie (or knighthood and fish and chips for a British audience). It is now an accepted broad goal to which all central banks pay at least lip service. Both the Bank of England and Charles Goodhart personally have been at the forefront of this trend, in research and in practice. Yet, like many other broad concepts in economic policy, such as ‘fiscal discipline’ or ‘price stability’, what central bank transparency actually means remains rather open to debate. As we celebrate the work of Professor Charles A.E. Goodhart, work notable for its clarity and its relevance, it is worthwhile to try to apply a similar standard to this central banking concept du jour. Recent monetary theory has been unsuccessful in providing this clarity. The bulk of today’s theoretical models applied to central bank transparency – including in the formal analysis of inflation targeting – have cast the issue as whether or not a representative agent of the public can discern the central bank’s ‘type’, wet or dry, that is soft or hard on inflation, and therefore whether it is more or less ‘credible’.1 This is simply the wrong question to frame, especially in the developed economies: no one really has any doubts about the commitment of any current central banks to low inflation, and any reasons for doubt that arise there would quickly become self-evident.2 Discerning...

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