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Forecast Transparency and Inflation Volatility: Empirical Evidence from Developing Countries

Author

Listed:
  • Mazhar Ummad

    (Department of Economics, Forman Christian College, (A Chartered University), Lahore 54600, Pakistan)

  • M’baye Cheick Kader

    (African Management Institute, Bamako, Mali)

Abstract

The desirability of transparency in its varied aspects is not always certain particularly for developing countries. This paper empirically investigates the link between forecast transparency and inflation volatility in a relatively homogenous sample of 41 developing economies over 1998–2007. It classifies central banks into transparent and opaque groups on the basis of their forecast transparency. The differential effect of the forecast transparency is then estimated both at a point in time and over time while controlling for the relevant factors. The main finding of the paper is that forecast transparency stabilizes inflation. In addition, we find that the stabilizing effect of disclosing numerical forecasts gets stronger over time supporting the theoretical insight that forecast transparency allows reputational externalities, and minimizes the likelihood of policy inconsistency. The results are robust against different specifications of the empirical model.

Suggested Citation

  • Mazhar Ummad & M’baye Cheick Kader, 2016. "Forecast Transparency and Inflation Volatility: Empirical Evidence from Developing Countries," Global Economy Journal, De Gruyter, vol. 16(4), pages 769-787, December.
    • Handle: RePEc:bpj:glecon:v:16:y:2016:i:4:p:769-787:n:8
    DOI: 10.1515/gej-2016-0060
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    Keywords

    transparency; monetary policy; central bank forecasts; inflation volatility;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

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