Central Bank Transparency: Causes, Consequences and Updates
We present updated estimates of central bank for 100 countries up through 2006 and use them to analyze both the determinants and consequences of monetary policy transparency in an integrated econometric framework. We establish that there has been significant movement in the direction of greater central bank transparency in recent years. Transparent monetary policy arrangements are more likely in countries with strong and stable political institutions. They are more likely in democracies, with their culture of transparency. Using these political determinants as instruments for transparency, we show that more transparency monetary policy operating procedures is associated with less inflation variability though not also with less inflation persistence.
State Planning Organization, Ankara, and University of California, Berkeley, respectively. An earlier version of this paper was presented to the conference on Money Matters: The Law, Politics and Economics of Currency, held at Tel Aviv University on 7-9 January 2009. We are grateful to Tal Sadeh and other conference participants for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Greater transparency of central bank operations is the most dramatic recent change in the conduct of monetary policy. Central...