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Does Central Bank Transparency Reduce Interest Rates?

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  • Eijffinger, Sylvester C W
  • Geraats, Petra M
  • van der Cruijsen, Carin A B

Abstract

Central banks have become increasingly transparent during the last decade. One of the main benefits of transparency predicted by theoretical models is that it enhances the credibility, reputation, and flexibility of monetary policy, which suggests that increased transparency should result in lower nominal interest rates. This paper exploits a detailed transparency data set to investigate this relationship for eight major central banks. It appears that for all central banks, the level of interest rates is affected by the degree of central bank transparency. In particular, the majority of the improvements in transparency are associated with significant effects on interest rates, controlling for economic conditions. In most of these cases, interest rates are lower, often by around 50 basis points, although in some instances transparency appears to have had a detrimental effect on interest rates.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5526.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5526

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Keywords: central bank transparency; interest rates; monetary policy;

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