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Transparency and monetary policy: what does the academic literature tell policymakers?

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  • Seth B. Carpenter
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    Abstract

    Transparency in monetary policy has become a popular topic over the past decade. However, the majority of the economic research is theoretical, calling into question its value as a practical guide to monetary policy. This paper surveys the literature to assess what conclusions a central bank can draw from the academic study of transparency and how beneficial transparency may be.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2004-35.

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    Date of creation: 2004
    Date of revision:
    Handle: RePEc:fip:fedgfe:2004-35

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    Keywords: Transparency in government ; Monetary policy;

    This paper has been announced in the following NEP Reports:

    References

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    1. Laurence Ball & Niamh Sheridan, 2004. "Does inflation targeting matter?," DNB Staff Reports (discontinued) 118, Netherlands Central Bank.
    2. Lewis, Karen K, 1991. "Why Doesn't Society Minimize Central Bank Secrecy?," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 403-15, July.
    3. Kenneth N. Kuttner & Adam S. Posen, 1999. "Does Talk Matter After All? Inflation Targeting and Central Bank Behavior," Working Paper Series WP99-10, Peterson Institute for International Economics.
    4. Tarkka, Juha & Mayes, David, 1999. "The Value of Publishing Official Central Bank Forecasts," Research Discussion Papers 22/1999, Bank of Finland.
    5. Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
    6. Henrik Jensen, . "Optimal Degrees of Tranaparency in Monetary Policymaking," EPRU Working Paper Series 01-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    7. Stephen Morris & Hyun Song Shin, 2001. "The CNBC Effect: Welfare Effects of Public Information," Cowles Foundation Discussion Papers 1312, Cowles Foundation for Research in Economics, Yale University.
    8. Faust, J. & Svensson, L.E.O., 1999. "The Equilibrium Degree of Transparency and Control in Monetary Policy," Papers 669, Stockholm - International Economic Studies.
    9. Faust, J. & Svensson, L.E.O., 1998. "Transparency and Credibility: Monetary Policy with Unobservable Goals," Papers 636, Stockholm - International Economic Studies.
    10. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2002. "Does it pay to be transparent? international evidence form central bank forecasts," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 99-118.
    11. Geraats, Petra M., 2000. "Why Adopt Transparency? The Publication of Central Bank Forecasts," Center for International and Development Economics Research, Working Paper Series qt0hw7h7cp, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    12. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers.
    13. Michelle R. Garfinkel & Seonghwan Oh, 1990. "When and how much to talk: credibility and flexibility in monetary policy with private information," Working Papers 1990-004, Federal Reserve Bank of St. Louis.
    14. Rudin, Jeremy R., 1988. "Central bank secrecy, `fed watching', and the predictability of interest rates," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 317-334, September.
    15. Alan S. Blinder, 1999. "Central Bank Credibility: Why Do We Care? How Do We Build It?," NBER Working Papers 7161, National Bureau of Economic Research, Inc.
    16. Cukierman, Alex, 2001. "Are Contemporary Central Banks Transparent about Economic Models and Objectives and What Difference Does it Make?," Discussion Paper Series 1: Economic Studies 2001,05, Deutsche Bundesbank, Research Centre.
    17. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January.
    18. Hahn, Volker & Gersbach, Hans, 2001. "Voting Transparency and Conflicting Interests in Central Bank Councils," Discussion Paper Series 1: Economic Studies 2001,03, Deutsche Bundesbank, Research Centre.
    19. W.H. Buiter, 1999. "Alice in Euroland," CEP Discussion Papers dp0423, Centre for Economic Performance, LSE.
    20. Walsh, Carl E, 1999. "Announcements, Inflation Targeting and Central Bank Incentives," Economica, London School of Economics and Political Science, vol. 66(262), pages 255-69, May.
    21. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    22. repec:fth:bfdipa:22/99 is not listed on IDEAS
    23. Benjamin M. Friedman, 2002. "The Use and Meaning of Words in Central Banking: Inflation Targeting, Credibility, and Transparency," NBER Working Papers 8972, National Bureau of Economic Research, Inc.
    24. Eijffinger, S.C.W. & Hoeberichts, M.M. & Schaling, E., 1997. "Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique," Discussion Paper 1997-47, Tilburg University, Center for Economic Research.
    25. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
    26. Cosimano, Thomas F & Van Huyck, John B, 1993. "Central Bank Secrecy, Interest Rates, and Monetary Control," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 370-82, July.
    27. Hans Gersbach, 2003. "On the negative social value of central banks' knowledge transparency," Economics of Governance, Springer, vol. 4(2), pages 91-102, 08.
    28. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
    29. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
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    Citations

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    Cited by:
    1. Marcel Peter & Scott Roger & Geoffrey Heenan, 2006. "Implementing Inflation Targeting," IMF Working Papers 06/278, International Monetary Fund.
    2. Malcolm Edey, 2006. "An Australian perspective on inflation targeting, communication and transparency," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 3-24 Bank for International Settlements.
    3. Nergiz Dincer & Barry Eichengreen, 2009. "Central Bank Transparency: Causes, Consequences and Updates," NBER Working Papers 14791, National Bureau of Economic Research, Inc.
    4. Carin van der Cruijsen & Sylvester Eijffinger, 2007. "The economic impact of central bank transparency: a survey," DNB Working Papers 132, Netherlands Central Bank, Research Department.
    5. Michael Lamla & Sarah M. Rupprecht, 2006. "The Impact of ECB Communication on Financial Market Expectations," KOF Working papers 06-135, KOF Swiss Economic Institute, ETH Zurich.
    6. Giuseppe Ciccarone & Giovanni Di Bartolomeo & Enrico Marchetti, 2005. "Unions, fiscal policy and central bank transparency," Macroeconomics 0508004, EconWPA.
    7. Rosa, Carlo & Verga, Giovanni, 2007. "On the consistency and effectiveness of central bank communication: Evidence from the ECB," European Journal of Political Economy, Elsevier, vol. 23(1), pages 146-175, March.
    8. Christopher W. Crowe, 2006. "Testing the Transparency Benefits of Inflation Targeting," IMF Working Papers 06/289, International Monetary Fund.
    9. Michael Belongia, 2007. "Opaque rather than transparent: Why the public cannot monitor monetary policy," Public Choice, Springer, vol. 133(3), pages 259-267, December.
    10. Carsten Hefeker, 2006. "EMU Enlargement, Policy Uncertainty and Economic Reforms," CESifo Working Paper Series 1767, CESifo Group Munich.
    11. Guembel, Alexander & Rossetto, Silvia, 2009. "Reputational cheap talk with misunderstanding," Games and Economic Behavior, Elsevier, vol. 67(2), pages 736-744, November.
    12. Novak Kondić & Borivoje D. Krušković, 2012. "Transparency analysis in the function of central bank objective," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 1(1), pages 77-90.
    13. Rozkrut, Marek & Rybinski, Krzysztof & Sztaba, Lucyna & Szwaja, Radoslaw, 2007. "Quest for central bank communication: Does it pay to be "talkative"?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 176-206, March.

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