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Does Transparency Pay?

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  • Rachel Glennerster
  • Yongseok Shin

Abstract

This paper studies whether transparency (measured by accuracy and frequency of macroeconomic information released to the public) leads to lower borrowing costs in sovereign bond markets. We analyze the data generated during 1999–2002 when the International Monetary Fund (IMF) instituted new ways for countries to increase their transparency—by publishing the IMF's assessment of their policies and committing to release more accurate data more frequently. The IMF's preexisting internal timetable for country reports introduced exogenous variation when countries were faced with the option to become more transparent. We exploit this time variation and construct instruments to estimate the impact of transparency on bond yields in a way that is free from endogeneity bias. We find that countries experience a statistically significant decline in borrowing costs (11 percent reduction in credit spreads on average) when they choose to become more transparent. The magnitude of the decline is inversely related to the initial level of transparency and the size of the debt market. IMF Staff Papers (2007) 55, 183–209; doi:10.1057/palgrave.imfsp.9450028; published online 22 January 2008

Suggested Citation

  • Rachel Glennerster & Yongseok Shin, 2008. "Does Transparency Pay?," IMF Staff Papers, Palgrave Macmillan, vol. 55(1), pages 183-209, April.
  • Handle: RePEc:pal:imfstp:v:55:y:2008:i:1:p:183-209
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    References listed on IDEAS

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    1. Gerardo Della Paolera & Alan M. Taylor, 2003. "Gaucho Banking Redux," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 1-42, January.
    2. Adolfo Barajas & Roberto Steiner, 2002. "Why Don't They Lend? Credit Stagnation in Latin America," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 156-184.
    3. Charles W. Calomiris & Andrew Powell, 2000. "Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999," NBER Working Papers 7715, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Barry Eichengreen, 2009. "From the Asian crisis to the global credit crisis: reforming the international financial architecture redux," International Economics and Economic Policy, Springer, vol. 6(1), pages 1-22, June.
    2. Wehner, Joachim & de Renzio, Paolo, 2013. "Citizens, Legislators, and Executive Disclosure: The Political Determinants of Fiscal Transparency," World Development, Elsevier, vol. 41(C), pages 96-108.
    3. Williams, Andrew, 2015. "A global index of information transparency and accountability," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 804-824.
    4. Alt, James & Lassen, David Dreyer & Wehner, Joachim, 2014. "It isn't just about Greece: domestic politics, transparency and fiscal gimmickry in Europe," LSE Research Online Documents on Economics 57639, London School of Economics and Political Science, LSE Library.
    5. Peat, Maurice & Svec, Jiri & Wang, Jue, 2015. "The effects of fiscal opacity on sovereign credit spreads," Emerging Markets Review, Elsevier, vol. 24(C), pages 34-45.
    6. Lightfoot, Geoffrey & Wisniewski, Tomasz, 2014. "Information Asymmetry and Power in a Surveillance Society," MPRA Paper 53109, University Library of Munich, Germany.
    7. Pintea Mirela-Oana & Achim Sorin Adrian & Lacatus Viorel, 2013. "Transparency Of Local Budgets In The North-West Region Of Romania," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 931-941, July.
    8. Stephen Nelson, 2010. "Does compliance matter? Assessing the relationship between sovereign risk and compliance with international monetary law," The Review of International Organizations, Springer, vol. 5(2), pages 107-139, June.

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