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Central Bank Transparency in Theory and Practice

  • Maria Demertzis
  • Andrew Hughes Hallet

We study the effects of Central Bank transparency on inflation and the output gap. We thus first identify a small analytical model which concludes that transparency affects the variability of inflation and output and not their average levels. Then we examine whether this conjecture holds empirically, employing the recently derived index of transparency by Eijffinger and Geraats. The empirical findings confirm that the averages are not affected by transparency. It does seem to explain however, about 50% of the variability in inflation. The relation between transparency and output volatility is less clear but appears to be positive rather than negative.

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File URL: http://www.dnb.nl/binaries/sr105_tcm46-146882.pdf
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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 105.

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Length: 45 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:dnb:staffs:105
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/
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  1. 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.
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  9. Faust, Jon & Svensson, Lars E O, 1999. "The Equilibrium Degree of Transparency and Control in Monetary Policy," CEPR Discussion Papers 2195, C.E.P.R. Discussion Papers.
  10. Eijffinger, Sylvester C W & Hoeberichts, Marco, 2002. "Central Bank Accountability and Transparency: Theory and Some Evidence," International Finance, Wiley Blackwell, vol. 5(1), pages 73-96, Spring.
  11. Demertzis, Maria & Hughes Hallett, Andrew, 2003. "Three Models of Imperfect Transparency in Monetary Policy," CEPR Discussion Papers 4117, C.E.P.R. Discussion Papers.
  12. Sibert, Anne, 2002. "Monetary policy with uncertain central bank preferences," European Economic Review, Elsevier, vol. 46(6), pages 1093-1109, June.
  13. Eijffinger, S.C.W. & Geraats, P., 2006. "How transparent are central banks?," Other publications TiSEM b34dfb1f-520f-4787-a08f-5, School of Economics and Management.
  14. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
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  16. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
    • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  17. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, June.
  18. Cukierman, A., 2000. "Accountability, Credibility, Transparency and Stabilization Policy in the Eurosystem," Papers 2000-4, Tel Aviv.
  19. Laurence Ball, 1999. "Aggregate demand and Long-Run Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 189-252.
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  22. Jakob Haan & Fabian Amtenbrink & Sandra Waller, 2004. "The Transparency and Credibility of the European Central Bank," Journal of Common Market Studies, Wiley Blackwell, vol. 42(4), pages 775-794, November.
  23. Melitz, Jacques, 1997. "Some Cross-Country Evidence about Debt, Deficits and the Behaviour of Monetary and Fiscal Authorities," CEPR Discussion Papers 1653, C.E.P.R. Discussion Papers.
  24. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  25. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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  27. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  28. Charles Nolan & Eric Schaling, 1996. "Monetary Policy Uncertainty and Central Bank Accountability," Bank of England working papers 54, Bank of England.
  29. Vredin, Anders & Warne, Anders, 2000. "Unemployment and Inflation Regimes," Working Paper Series 107, Sveriges Riksbank (Central Bank of Sweden).
  30. Christopher Allsopp, 2002. "Macroeconomic Policy Rules in Theory and in Practice," Discussion Papers 10, Monetary Policy Committee Unit, Bank of England.
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