Is Central Bank Transparency Desirable?

I analyse central bank transparency when the central banks objective function is its private information. Non-transparency exists when the public does not observe the action of the central bank and an unobservable component of the ination-control error keeps the public from using its observation of ination to infer the action, and hence, the central banks objective. The degree of transparency is de\u85ned as the fraction of the ination-control error that is observable. This notion is similar to that of Cukierman and Meltzer [9], Faust and Svensson [13], [14] and others. I \u85nd a number of results; some are di¤erent than what previous authors have found and others are novel. I demonstrate that non-transparent central banks with private information inate less than central banks in a regime with perfect information. Moreover, in contrast to transparent central banks with private information, non-transparent banks with private information respond optimally to shocks. Increased transparency lowers planned ination, but surprisingly, it can worsen the publics ability to infer the central banks objective function. I \u85nd that, no matter what their preferences, central banks and societies are made better o ¤ by more transparency. I further demonstrate that the transparent regime is not the same as the non-transparent regime when non-transparency goes to zero. I show that planned ination is not nec-essarily lower in the transparent regime than in the non-transparent regime. However, numerical results suggest that all central banks and societies are better o ¤ in the trans-parent regime. JEL classi\u85cation: 5