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Transparency and output stability: Empirical evidence

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  • Ummad Mazhar

Abstract

This paper focuses on the empirical link between monetary policy transparency and output volatility. The questions addressed are: (i) Does transparency about policy processes stabilize output? (ii) Do different aspects of transparency differ qualitatively or quantitatively in terms of their effects on output volatility? Controlling for many standard structural sources of output stability, and using a data set of 80 countries over 1998 to 2007, our results show that transparency has a stabilizing influence on output volatility. However, it has less influence on output volatility than other structural sources of stabilization. Further, among the dimensions of transparency we find that operational transparency (covering control errors and macroeconomic disturbances) has the most robust stabilizing effect on output volatility. Whenever significant, political transparency (covering prioritization of objective and institutional arrangements) tends to increase output volatility, whereas other components have insignificant or negligible influence.

Suggested Citation

  • Ummad Mazhar, 2013. "Transparency and output stability: Empirical evidence," Working Papers CEB 13-010, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/138935
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    Cited by:

    1. Ummad Mazhar & Cheick Kader M'baye, 2014. "Does Forecasts Transparency Affect Macroeconomic Volatility in Developing Countries ? Evidence From Quasi-Natural Experiments," Working Papers 1410, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    2. Andrew Williams, 2014. "The effect of transparency on output volatility," Economics of Governance, Springer, vol. 15(2), pages 101-129, May.

    More about this item

    Keywords

    Monetary Policy Transparency; Central Bank Independence; Transparency Index; Output Stabilization;

    JEL classification:

    • 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

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