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Central bank transparency and the volatility of exchange rates

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  • Eichler, Stefan
  • Littke, Helge C.N.

Abstract

We analyze the effect of monetary policy transparency on bilateral exchange rate volatility. We test the theoretical predictions of a stylized model using panel data for 62 currencies from 1998 to 2010. We find strong evidence that an increase in the availability of information about monetary policy objectives decreases exchange rate volatility. Using interaction models, we find that this effect is more pronounced for countries with a lower flexibility of goods prices, a lower level of central bank conservatism, and a higher interest rate sensitivity of money demand.

Suggested Citation

  • Eichler, Stefan & Littke, Helge C.N., 2018. "Central bank transparency and the volatility of exchange rates," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 23-49.
    • Handle: RePEc:eee:jimfin:v:89:y:2018:i:c:p:23-49
    DOI: 10.1016/j.jimonfin.2018.07.006
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    More about this item

    Keywords

    Central bank transparency; Exchange rate volatility; Panel model;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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