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The role of central bank transparency for guiding private sector forecasts

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  • Ehrmann, Michael
  • Eijffinger, Sylvester
  • Fratzscher, Marcel

Abstract

There is a broad consensus in the literature that costs of information processing and acquisition may generate costly disagreements in expectations among economic agents, and that central banks may play a central role in reducing such dispersion in expectations. This paper analyses empirically whether enhanced central bank transparency lowers dispersion among professional forecasters of key economic variables, using a large set of proxies for central bank transparency in 12 advanced economies. It finds evidence for a significant and sizeable effect of central bank transparency on forecast dispersion, be it by means of announcing a quantified inflation objective, other forms of communication, or by publishing central banks’ inflation and output forecasts. However, there also appear to be limits to central bank transparency, with decreasing marginal returns to enhancing (economic) transparency, and given our findings that disagreement among inflation expectations in the general public is not affected by the various central bank transparency measures analyzed in this paper. JEL Classification: E37, E52, C53

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1146.

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Date of creation: Jan 2010
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Handle: RePEc:ecb:ecbwps:20101146

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Keywords: central bank communication; central banking; disagreement; forecasting; inflation targeting; monetary policy; survey expectations; transparency;

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References

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Citations

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Cited by:
  1. Beechey, Meredith & Österholm, Pär, 2012. "Policy Interest-Rate Expectations in Sweden: A Forecast Evaluation," Working Paper 127, National Institute of Economic Research.
  2. Paul Hubert, 2013. "FOMC forecasts as a focal point for private expectations," Documents de Travail de l'OFCE 2013-12, Observatoire Francais des Conjonctures Economiques (OFCE).
  3. Paul Hubert, 2013. "ECB projections as a tool for understanding policy decisions," Documents de Travail de l'OFCE 2013-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  4. Frenkel, Michael & Rülke, Jan-Christoph & Zimmermann, Lilli, 2013. "Do private sector forecasters chase after IMF or OECD forecasts?," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 217-229.
  5. repec:fce:doctra:13-03 is not listed on IDEAS
  6. Badarinza, Cristian & Gross, Marco, 2012. "Information flows and disagreement," Working Paper Series 1475, European Central Bank.
  7. Csávás, Csaba & Erhart, Szilárd & Naszódi, Anna & Pintér, Klára, 2012. "Changing central bank transparency in Central and Eastern Europe during the financial crisis," MPRA Paper 40335, University Library of Munich, Germany.
  8. Paul Hubert, 2009. "Informational Advantage and Influence of Communicating Central Banks," Documents de Travail de l'OFCE 2009-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  9. Paul Hubert, 2013. "The influence and policy signaling role of FOMC forecasts," Documents de Travail de l'OFCE 2013-03, Observatoire Francais des Conjonctures Economiques (OFCE).
  10. Menno Middeldorp, 2011. "Central Bank Transparency, the Accuracy of Professional Forecasts, and Interest Rate Volatility," Working Papers 11-12, Utrecht School of Economics.
  11. Jan Filáček & Branislav Saxa, 2012. "Central Bank Forecasts as a Coordination Device: Evidence from the Czech Republic," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 6(3), pages 244-264, October.
  12. Stephan Fahr & Roberto Motto & Massimo Rostagno & Frank Smets & Oreste Tristani, 2011. "Lessons for monetary policy strategies from the recent past," Chapters, European Central Bank.
  13. Pacheco, Luis, 2010. "ECB Projections: should leave it to the pros?," Working Papers 11/2010, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
  14. Thomas Mayer & Holger Schmieding & Manfred Jäger-Ambrozewicz & Michael Lamla & Jan-Egbert Sturm & Ulrich Kater & Leon Leschus & Wolfgang Brachinger, 2011. "Zinserhöhung der EZB: Wie groß ist die Inflationsgefahr?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(14), pages 03-26, 07.
  15. Michael R Frenkel & Jan C Rülke, 2013. "Is the ECB's monetary benchmark still alive?," Economics Bulletin, AccessEcon, vol. 33(2), pages 1204-1214.
  16. repec:fce:doctra:13-04 is not listed on IDEAS
  17. Tomasz Łyziak, 2013. "A note on central bank transparency and credibility in Poland," National Bank of Poland Working Papers 162, National Bank of Poland, Economic Institute.
  18. Rülke, Jan-Christoph, 2012. "Do professional forecasters apply the Phillips curve and Okun's law? Evidence from six Asian-Pacific countries," Japan and the World Economy, Elsevier, vol. 24(4), pages 317-324.
  19. Katerina Arnostova & Jozef Barunik & Jan Filacek & Michal Franta & David Havrlant & Roman Horvath & Filip Novotny & Marie Rakova & Lubos Ruzicka & Branislav Saxa & Katerina Smidkova & Peter Toth, 2012. "Macroeconomic Forecasting: Methods, Accuracy and Coordination," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 10, number rb10/1 edited by Jan Babecky, August.

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