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Is Central Banks’ Effectiveness Related to their Transparency? A Case of European Economies

Author

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  • Szyszko Magdalena

    (WSB University in Poznan, Faculty of Finance and Banking, Institute of Finance, Powstańców Wielkopolskich 5, 61-895 Poznań, Poland)

  • Próchniak Mariusz

    (SGH Warsaw School of Economics, Collegium of World Economy, Department of Economics II, Al. Niepodległości 162, 02-554 Warszawa, Poland)

Abstract

This article presents a novel transparency measure and examines forward-looking transparency of six European central banks. It aims at evaluating whether the higher degree of transparency is related to better economic stabilization expressed in terms of output and inflation gap minimization. The methods used are based on data and a statistical analysis. To extract the cyclical component of time series, the Hodrick-Prescott filter is employed. The research covers the Czech National Bank, the National Bank of Hungary, the National Bank of Poland, the National Bank of Romania, the Bank of England, and the Sveriges Riksbank during 1997–2016. Firstly, we develop an index of forward-looking transparency that focuses on signalling intentions by the central banks. It is one of the main contributions of our article. Secondly, we compare transparency in the field of signaling intentions within our sample, which is another aspect of originality of this study. The results indicate that the Czech National Bank and the central banks of developed economies outperform the other central banks from our sample in terms of openness. Finally, under some caveats, we relate the degree of transparency to the levels and volatility of output and inflation gaps. We find the existence of the relationship between the central banks’ transparency and their effectiveness mainly for Czech Republic and the UK, but also, although to a lesser extent, for Poland and Romania.

Suggested Citation

  • Szyszko Magdalena & Próchniak Mariusz, 2018. "Is Central Banks’ Effectiveness Related to their Transparency? A Case of European Economies," Folia Oeconomica Stetinensia, Sciendo, vol. 18(2), pages 121-143, December.
  • Handle: RePEc:vrs:foeste:v:18:y:2018:i:2:p:121-143:n:9
    DOI: 10.2478/foli-2018-0023
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    References listed on IDEAS

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    More about this item

    Keywords

    central bank transparency; forward-looking communication; inflation gap; output gap; Hodrick-Prescott filter;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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