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Economic Quarterly

Summer 2001

Transparency in the Practice of Monetary Policy

J. Alfred Broaddus, Jr.

Richmond Fed President Al Broaddus argues that greater transparency is desirable in U.S. monetary policy. Transparency should begin with an explicit congressional mandate for low inflation. In the medium term, the Fed should utilize an announced explicit inflation target to guide inflation back to a long-run path. Enhancements to instrument transparency already in place—the announcement of the current federal funds rate target and the release of the “tilt,” along with accompanying press statements—have been beneficial. Finally, speeches and other public statements by individual FOMC participants provide markets with a more robust and complete understanding of thinking inside the Fed. This last aspect of transparency is necessary to improve the public’s understanding of monetary policy over time.

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