Central Bank Transparency: Causes, Consequences and Updates

Abstract

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

Optimal Central Bank Transparency

“…16 Alternatively, one could try to work with instruments. Dincer and Eichengreen (2009) are able to confirm our finding of an optimal intermediate degree of transparency only when including transparency directly but not when a fitted value of transparency is taken (based on a regression relating transparency to a constant and Rule of Law). However, note that it is hard to find reliable instruments that strongly relate to central bank transparency (also intuitively) but are exogenous to inflation persistence.…”

“…In reaction to an earlier draft of this paper (CEPR Discussion Paper No. 6889) they have elaborated their persistence analysis (Dincer and Eichengreen, 2009) and included as controls also: openness*exchange rate dummy, political stability and regulatory quality. However, the controls they include either do not significantly relate to inflation persistence or have a coefficient of about zero.…”

“…Ignoring these breaks in inflation results into persistence measures that are too high (see also Gadzinski and Orlandi, 2004). level of inflation is an advantage compared to studies like Dincer and Eichengreen (2009), who use inflation persistence instead of inflation as the dependent variable.…”

Monetary Policy Committee Transparency: Measurement, Determinants, and Economic Effects

“…Model (3) of Table 3 contains a robustness analysis with regard to the inclusion of institutional TI by Dincer and Eichengreen (2009), which causes a substantial reduction in the number of observations. Most of the previous results hold up quite well.…”

Central bank transparency and financial market expectations: The case of emerging markets

“…Thus, central banks might not necessarily benefit from further increasing transparency. Middeldorp (2011) examines 24 emerging and advanced economies using the Dincer and Eichengreen (2009) data set. He finds that transparency increases the accuracy and reduces the volatility of professional interest forecasts.…”