Optimal central bank transparency

Abstract

Optimal Central Bank transparencyvan der Cruijsen, C.A.B.; Eijffinger, Sylvester; Hoogduin, L.H. Published in: Journal of International Money and Finance Document version:Early version, also known as pre-print General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim. b s t r a c tShould central banks increase their degree of transparency any further? We show that there is likely to be an optimal intermediate degree of central bank transparency. Up to this optimum more transparency is desirable: it improves the quality of private sector inflation forecasts. But beyond the optimum people might: (1) start to attach too much weight to the conditionality of their forecasts, and/or (2) get confused by the large and increasing amount of information they receive. This deteriorates the (perceived) quality of private sector inflation forecasts. As a result, inflation is set in a more backward looking manner resulting in higher inflation persistence. By using a large scale panel data set on the transparency of central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while several central banks would benefit from further transparency increases, some already have reached the optimal level.

The Information Content of Central Bank Interest Rate Projections: Evidence from New Zealand*

“…While most central banks have made several steps towards transparent monetary policy regimes, the optimal degree of central bank transparency is still under debate, see e.g. van der Cruijsen et al (2010) This paper investigates the role of the RBNZ's interest rate projections for market expectations about future short-term rates and the behavior of long-term interest rates.…”

Transparency and trust: the case of the European Central Bank

“…We hypothesize that greater transparency is likely to increase trust but that too much transparency does not necessarily have to be conducive for trust, which corresponds with the notion of limits to transparency (Cukierman 2010;Issing 2014) and theoretical literature such as studies by Walsh (2007), van der Cruijsen, Eijffinger, and Hoogduin (2010) and Baeriswyl (2011) that suggest that an optimal level of central bank transparency exists. In line with this literature, our supposition is that once central bank communicates all uncertainties surrounding its forecasts and explains the potential disruptions in monetary policy transmission mechanism and policy errors, this high level of transparency may eventually decrease the trust the citizens have in this institution.…”

“…However, we know much less about how the general public perceives the transparency of central banks, including the European Central Bank (ECB), and especially whether transparency affects the amount of trust that the public has in central banks (van der Cruijsen and Eijffinger 2010). This situation is somewhat paradoxical given that trust is likely to improve central bank credibility and as such help to anchor inflation expectations and improve monetary policy efficiency in general.…”

Governança em bancos centrais: um estudo comparativo das práticas de governança dos bancos centrais do Brasil, Canadá e Inglaterra

“…Only recently, after the 2008 global financial crisis, financial stability started to be studied. Some authors suggest total transparency regarding information concerning the monetary policy (Tomljanovich, 2007), while others support that transparency cannot be total (Van Der Cruijsen, Eijffinger and Hoogduin, 2010). Neuenkirch (2012) states that empiric literature, in its greatest part, finds beneficial effects in transparency.…”