What Kind of Transparency?∗

How transparent should a central bank be about (i) its objectives and (ii) its information on how monetary policy maps into economic outcomes? We consider a version of the Barro-Gordon framework in which monetary policy signals an inflation-biased Bank’s private information on both dimensions. We find that a commitment to transparency about how policy affects outcomes is desirable while transparency about objectives need not be. Public uncertainty about a Bank’s inflation or output target can mitigate the Bank’s inability to commit to achieving that target. ∗We thank Ryan Chahrour, Alessandro Lizzeri, Emi Nakamura, Jón Steinsson, Mike Woodford, and participants at the Columbia Macro lunch for helpful comments. Sergey Kolbin and Enrico Zanardo provided able research assistance. †University of Chicago Booth School of Business; [email protected]. ‡Columbia University, Department of Economics; [email protected]. “A given [monetary] policy action. . . can have very different effects on the economy, depending (for example) on what the private sector infers. . . about the information that may have induced the policymaker to act, about the policymaker’s objectives in taking the action. . . ” — Ben Bernanke (2003)