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Central Bank Transparency and Financial Market Expectations: The Case of Emerging Markets

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  • Matthias Neuenkirch

    ()
    (University of Aachen)

Abstract

In this paper, we study how central bank transparency influences the formation of money market expectations in emerging markets. The sample covers 25 countries for the period from January 1998 to December 2009. We find, first, that transparency reduces the bias (the difference between the money market rate and the weighted expected target rate over the contract period) in money market expectations. The effect is larger for countries with no exchange rate peg and countries with low income. Second, an intermediate level of transparency is found to have the most favorable influence on money market expectations: neither complete secrecy nor complete transparency is optimal. Finally, all subcategories of the Eijffinger and Geraats (2006) index lead to a smaller bias in expectations, with political transparency having the largest effect.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/36-2011_neuenkirch.pdf
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201136.

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Length: 21 pages
Date of creation: 2011
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201136

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Keywords: Central Bank Transparency; Emerging Markets; Financial Market Expectations; Interest Rates; Monetary Policy; Money Market;

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References

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  1. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
  2. roman Horvath & Radovan Fiser, 2009. "Central Bank Communication and Exchange Rate Volatility: A GARCH Analysis," William Davidson Institute Working Papers Series wp962, William Davidson Institute at the University of Michigan.
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  8. Chortareas, Georgios & Stasavage, David & Sterne, Gabriel, 2002. "Monetary Policy Transparency, Inflation and the Sacrifice Ratio," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(2), pages 141-55, April.
  9. Cruijsen, C.A.B. van der & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency: A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research.
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  13. 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.
  14. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob de Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," DNB Working Papers 170, Netherlands Central Bank, Research Department.
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  19. Cruijsen, C.A.B. van der, 2008. "The Economic Impact of Central Bank Transparency," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3130604, Tilburg University.
  20. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2001. "Does it pay to be transparent? International evidence from central bank forecasts," Bank of England working papers 143, Bank of England.
  21. Andersson, Magnus & Hofmann, Boris, 2009. "Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters," Working Paper Series 1098, European Central Bank.
  22. Neuenkirch, Matthias, 2012. "Managing financial market expectations: The role of central bank transparency and central bank communication," European Journal of Political Economy, Elsevier, vol. 28(1), pages 1-13.
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  24. Swanson, Eric T., 2006. "Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 791-819, April.
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Cited by:
  1. Matthias Neuenkirch & Peter Tillmann, 2013. "Superstar Central Bankers," MAGKS Papers on Economics 201354, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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