No abstract

Greater transparency in central bank operations is the most dramatic change in the conduct of monetary policy in recent years. In this paper we present new information on its extent and effects. We show that the trend is general: a large number of central banks have moved in the direction of greater transparency since the late 1990s. We then analyze the determinants and effects of central bank transparency in an integrated empirical framework. Transparency is greater in countries with more stable and developed political systems and deeper and more developed financial markets. Our preliminary analysis suggests broadly favorable if relatively weak impacts on inflation and output variability.

We present updated estimates of central bank for 100 countries up through 2006 and use them to analyze both the determinants and consequences of monetary policy transparency in an integrated econometric framework. We establish that there has been significant movement in the direction of greater central bank transparency in recent years. Transparent monetary policy arrangements are more likely in countries with strong and stable political institutions. They are more likely in democracies, with their culture of transparency. Using these political determinants as instruments for transparency, we show that more transparency monetary policy operating procedures is associated with less inflation variability though not also with less inflation persistence.Nergiz Dincer State Planning Organization Ankara Turkey

We compare the architecture and governance of financial supervision across countries. We find that countries where the supervisor is the central bank, or where it is independent of government, have more conservatively regulated financial systems. Nonperforming loans are lower in countries where the supervisor is independent, while capital ratios are higher where the central bank, rather than another agency of government, is the lead supervisor. At the same time, some measures of bank credit to the economy are significantly lower both where the supervisor is independent and where the lead supervisor is the central bank. Insofar as the same institutional arrangements that confer greater stability, such as higher capital ratios and lower nonperforming loans, also limit the provision of credit to the economy, countries face a tradeoff. That different countries have been moving in different directions in restructuring their supervisory arrangements should not be surprising insofar as they have different objectives for their financial sector.

We present updated estimates of central bank for 100 countries up through 2006 and use them to analyze both the determinants and consequences of monetary policy transparency in an integrated econometric framework. We establish that there has been significant movement in the direction of greater central bank transparency in recent years. Transparent monetary policy arrangements are more likely in countries with strong and stable political institutions. They are more likely in democracies, with their culture of transparency. Using these political determinants as instruments for transparency, we show that more transparency monetary policy operating procedures is associated with less inflation variability though not also with less inflation persistence. Nergiz DincerState Planning Organization Ankara Turkey