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Monetary Policy Transparency:Too Good to be True?

  • Iris Biefang-Frisancho Mariscal

    (School of Economics, University of the West of England)

  • Peter Howells


    (School of Economics, University of the West of England)

In the last fifteen years or so the conduct of monetary policy in developed economies has converged in a number of ways which include an increasing emphasis on ‘openness’ and ‘transparency’ in policy-making. There is a widespread belief that transparency in the conduct of UK monetary policy has increased substantially since, and because of, the introduction of inflation targeting and associated institutional reforms in 1992. A large measure of this belief is based upon studies which reveal the increased ability of money market agents to anticipate accurately the change in official rates. In this paper, we have updated one of those studies and show that the findings are largely unaffected by events of the last five years. More interestingly, perhaps, we have floated the possibility that this improved anticipation may be the result of developments other than institutional reforms. For example, it is notable that the Bank of England has made fewer and smaller interest changes since 1992. It is also widely believed (and the behaviour of many macro variables suggests this) that economies have generally become more stable since 1992. If this is true, then macroeconomic forecasts in general should have improved and the increased anticipation would be, partly at least, due to this rather than institutional changes. We test both theses hypotheses with negative results.

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Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0405.

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Length: 16 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:uwe:wpaper:0405
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  1. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
  2. Charles R. Bean & Matthias Paustian & Adrian Penalver & Tim Taylor, 2010. "Monetary policy after the fall," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 267-328.
  3. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Cowles Foundation Discussion Papers 667, Cowles Foundation for Research in Economics, Yale University.
  4. Nikolaos Panigirtzoglou & James Proudman & John Spicer, 2000. "Persistence and volatility in short-term interest rates," Bank of England working papers 116, Bank of England.
  5. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  6. Hardy, Daniel C., 1996. "Market reaction to changes in German official interest rates," Discussion Paper Series 1: Economic Studies 1996,04, Deutsche Bundesbank, Research Centre.
  7. Andrew G Haldane & Vicky Read, 2000. "Monetary policy surprises and the yield curve," Bank of England working papers 106, Bank of England.
  8. William Poole & Robert H & Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 65-94.
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