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Central Bank Transparency in Theory and Practice

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  • Maria Demertzis
  • Andrew Hughes Hallet

Abstract

We study the effects of Central Bank transparency on inflation and the output gap. We thus first identify a small analytical model which concludes that transparency affects the variability of inflation and output and not their average levels. Then we examine whether this conjecture holds empirically, employing the recently derived index of transparency by Eijffinger and Geraats. The empirical findings confirm that the averages are not affected by transparency. It does seem to explain however, about 50% of the variability in inflation. The relation between transparency and output volatility is less clear but appears to be positive rather than negative.

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File URL: http://www.dnb.nl/binaries/sr105_tcm46-146882.pdf
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Bibliographic Info

Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 105.

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Length: 45 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:dnb:staffs:105

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Keywords: Central Bank; Economic and Political Transparency; Inflation and Output Gap performance;

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  1. Eijffinger, S.C.W. & Geraats, P.M., 2004. "How Transparent Are Central Banks?," Cambridge Working Papers in Economics 0411, Faculty of Economics, University of Cambridge.
  2. Jon Faust & Lars E.O. Svensson, 1999. "The equilibrium degree of transparency and control in monetary policy," International Finance Discussion Papers 651, Board of Governors of the Federal Reserve System (U.S.).
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  1. Lay off Bernanke
    by chris dillow in Stumbling and Mumbling on 2006-05-18 11:08:53
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