Central Bank transparency in theory and practice

We study the effects of Central Bank transparency on inflation and the output gap. Our intention is to illustrate, with the help of a small analytical model, how an imperfectly transparent Central Bank affects the two main macroeconomic variables, inflation and the output gap. The model tells us tha...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:Journal of macroeconomics 2007-12, Vol.29 (4), p.760-789
Hauptverfasser: Demertzis, Maria, Hughes Hallett, Andrew
Format: Artikel
Sprache:eng
Schlagworte:
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
Beschreibung
Zusammenfassung:We study the effects of Central Bank transparency on inflation and the output gap. Our intention is to illustrate, with the help of a small analytical model, how an imperfectly transparent Central Bank affects the two main macroeconomic variables, inflation and the output gap. The model tells us that transparency affects the variability of inflation and output but not their average levels. Then we examine the extent to which this conjecture is justified by the index of transparency constructed by Eijffinger and Geraats. Given the limitations of such indices, we only examine the correlations between the index of transparency and the macro variables in question. This analysis shows that the average magnitudes are not affected by transparency but their variability is. In the case of inflation, its variability benefits from the reduction of transparency and about 50% is explained by the variability in the transparency index. The effect on output volatility on the other hand is less clear, and in any case transparency seems to increase it rather than decrease it.
ISSN:0164-0704
1873-152X
DOI:10.1016/j.jmacro.2005.06.002