Central Bank of Colombia paper models transparency incentives
A working paper published by the Central Bank of Colombia on May 29, models the incentives of central banks to misrepresent private information.
The author, Julian Parra-Polania, develops a rational expectations model of central bank behaviour with three communication choices: opacity, transparency and misrepresentation. The paper finds that the central bank has an incentive to misrepresent shocks to cushion their impact using inflation expectations.
The paper considers a number of solutions to
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