Essays in Honour of Charles Goodhart, Volume One
Edited by Paul Mizen
Chapter 5: Six practical views of central bank transparency
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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