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

  • Matthias Neuenkirch

    ()

    (University of Aachen)

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
File Function: Second version, 2011
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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
Contact details of provider: Postal: Universitätsstraße 25, 35037 Marburg
Phone: 06421/28-1722
Fax: 06421/28-4858
Web page: http://www.uni-marburg.de/fb02/
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  1. 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," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-45, December.
  2. Balázs Égert & Evžen Kočenda, 2012. "The impact of macro news and central bank communication on emerging European forex markets," EconomiX Working Papers 2012-20, University of Paris West - Nanterre la Défense, EconomiX.
  3. Eijffinger, S.C.W. & Geraats, P., 2006. "How transparent are central banks?," Other publications TiSEM b34dfb1f-520f-4787-a08f-5, Tilburg University, School of Economics and Management.
  4. 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.
  5. Carin A.B. van der Cruijsen & Sylvester C.W. Eijffinger & Lex H. Hoogduin, 2008. "Optimal Central Bank Transparency," DNB Working Papers 178, Netherlands Central Bank, Research Department.
  6. Otmar Issing, 2005. "Communication, transparency, accountability: monetary policy in the twenty-first century," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 65-83.
  7. Selva Demiralp, 2001. "Monetary policy in a changing world: rising role of expectations and the anticipation effect," Finance and Economics Discussion Series 2001-55, Board of Governors of the Federal Reserve System (U.S.).
  8. Lange, Joe & Sack, Brian & Whitesell, William, 2003. " Anticipations of Monetary Policy in Financial Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 889-909, December.
  9. Goyal, Ashima & Arora, Sanchit, 2012. "The Indian exchange rate and Central Bank action: An EGARCH analysis," Journal of Asian Economics, Elsevier, vol. 23(1), pages 60-72.
  10. de Haan, Jakob & Eijffinger, Sylvester C.W. & Rybinski, Krzysztof, 2007. "Central bank transparency and central bank communication: Editorial introduction," European Journal of Political Economy, Elsevier, vol. 23(1), pages 1-8, March.
  11. Christopher Crowe & Ellen E. Meade, 2007. "Central Bank Independence and Transparency: Evolution and Effectiveness," Working Papers 2007-20, American University, Department of Economics.
  12. 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.
  13. van der Cruijsen, C.A.B., 2008. "The economic impact of central bank transparency," Other publications TiSEM 86c1ba91-1952-45b4-adac-8, Tilburg University, School of Economics and Management.
  14. 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.
  15. Antonio Fatás & Ilian Mihov & Andrew K. Rose, 2007. "Quantitative Goals for Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1163-1176, 08.
  16. Pierre Gosselin, Aileen Lotz and Charles Wyplosz, 2007. "Interest Rate Signals and Central Bank Transparency," IHEID Working Papers 19-2007, Economics Section, The Graduate Institute of International Studies, revised Aug 2007.
  17. Pierre L. Siklos, 2010. "Central Bank Transparency: Another Look," CAMA Working Papers 2010-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  18. Matthias Neuenkirch, 2010. "Managing Financial Market Expectations: The Role of Central Bank Transparency and Central Bank Communication," MAGKS Papers on Economics 201028, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  19. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
  20. 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.
  21. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  22. Andersson, Magnus & Hofmann, Boris, 2009. "Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters," Working Paper Series 1098, European Central Bank.
  23. Nergiz Dincer & Barry Eichengreen, 2009. "Central Bank Transparency: Causes, Consequences and Updates," NBER Working Papers 14791, National Bureau of Economic Research, Inc.
  24. Jonathan Coppel & Ellis Connolly, 2003. "What Do Financial Market Data Tell Us about Monetary Policy Transparency?," RBA Research Discussion Papers rdp2003-05, Reserve Bank of Australia.
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