The impact of central bank transparency on inflation expectations

Cruijsen, Carin van der; Demertzis, Maria

doi:10.1016/j.ejpoleco.2006.09.009

Cited by 64 publications

(22 citation statements)

References 18 publications

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“…Crowe and Meade (2008) find a significantly positive relation between their transparency measure and the relative accuracy of private sector forecasts for inflation. Van der Cruijsen and Demertzis (2007) find that greater transparency tends to make private sector inflation expectations less sensitive to past inflation outcomes. There is also evidence that transparency improves the predictability of monetary policy actions (e.g.…”

Section: Institutional and Macroeconomic Environmentmentioning

confidence: 83%

Trends in Monetary Policy Transparency^*

Geraats

2009

International Finance

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Transparency has become a prominent feature of monetary policy. This paper provides an overview of central bank communication practices and is the first to systematically analyze transparency trends throughout the world and across monetary policy frameworks. It shows that increases in information disclosure have not been confined to inflation targeting but extend to other monetary policy frameworks, although there are significant differences. In addition, countries with higher inflation and economic development have undergone larger increases in transparency. Moreover, it shows that greater transparency has been followed by lower average inflation.JEL Code: E42, E58.

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Section: Institutional and Macroeconomic Environmentmentioning

confidence: 83%

Trends in Monetary Policy Transparency^*

Geraats

2009

International Finance

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“…where is the uncertainty component (i.e., aggregate uncertainty, common uncertainty or disagreement) of country i at month t, is a yearly dummy variable to capture time varying uncertainty, is a monthly dummy variable to capture seasonality in forecasts, is an inflation targeting dummy variable that takes a value of 1 during inflation targeting periods and zero otherwise, is a forward guidance dummy variable that takes a value of 1 during the forward guidance periods and zero otherwise, it M is a set of economic control variables, is the error term, , , , and are parameters, and is a coefficient vector associated with control variables. We include a number of control variables that have been identified in the literature as having potential impact on forecast uncertainty and disagreement (e.g., Dopke and Fritsche, 2006;van der Cruijsen and Demertzis, 2007;Patton and Timmermann, 2010;Dovern et al, 2012;Ehrmann et al, 2012;Lamla and Maag, 2012;Hartmann and Roestel, 2013;Posso and Tawadros, 2013;Siklos, 2013). Accordingly, our control variables are the lagged 1-month changes in dollar exchange rates, the change in WTI crude oil price, and unemployment rate, in addition to the output gap, the term spread defined as the difference between a 10-year government bond yield and a 3-month money market rate and the corresponding level variable for inflation, short-term or long-term rate.…”

Section: The Effect Of the Monetary Policy Regimebinary Distinctionsmentioning

confidence: 99%

The implications of central bank transparency for uncertainty and disagreement

Jitmaneeroj

Lamla

Wood

2019

Journal of International Money and Finance

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We are thankful for receiving the Research Donation from the Bank of England to be able to purchase the Consensus Forecast Data. Highlights Explore the effects of increased transparency, inflation targeting and forward guidance on aggregate uncertainty, common uncertainty and disagreement. Provide evidence that increased transparency reduces mainly common uncertainty. Looking at disagreement only understates benefits of transparency. AbstractUsing survey data from 25 economies we provide evidence that greater transparency surrounding monetary policy reduces uncertainty of interest rates and inflation, primarily by reducing uncertainty that is common to agents rather than disagreement between agents. This suggests that studies that focus on disagreement as a proxy for uncertainty understate the benefits of monetary policy transparency. The adoption of inflation targets and forward guidance are both associated with lower uncertainty, although inflation targets have a stronger impact on reducing uncertainty than forward guidance. Moreover, there are diminishing benefits from ever higher levels of transparency. Taken as a whole, our results support the contention that clarity of communication is as important as the magnitude of transparency. 2 Keywords Central bank transparency, Uncertainty, Disagreement, Monetary policy Highlights  Explore the effects of increased transparency, inflation targeting and forward guidance on aggregate uncertainty, common uncertainty and disagreement. Provide evidence that increased transparency reduces mainly common uncertainty. Looking at disagreement only understates benefits of transparency.

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“…As a result, scholars focused on the economic determinants of credit ratings, explaining country credit ratings through macroeconomic conditions like per capita income, GDP growth, inflation, external debt, level of economic development, currency crises, and default history. 7 In addition, credit rating agencies appear to consider directly electoral and partisan cycles (Vaaler, Schrage, & Block, 2006). Even if resources exist, they may choose to default for ideological reasons, as Ecuador did in 2008.…”

Section: Countries and Creditworthinessmentioning

confidence: 99%

“…Recent work provides evidence that democracies and countries that have the characteristics of democracy, including rule of law, respect for property rights, and constraints on executive authority have better credit ratings (Beaulieu et al, 2012;Biglaiser & Staats, 2012;Butler & Fauver, 2006). 7 In addition, credit rating agencies appear to consider directly electoral and partisan cycles (Vaaler, Schrage, & Block, 2006).…”

Section: Countries and Creditworthinessmentioning

confidence: 99%

Sovereign credit ratings and central banks: Why do analysts pay attention to institutions?

Bodea

Hicks

2018

Economics & Politics

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This paper studies the effect of the governance of modern central banks on the ratings assigned by the credit rating agencies Standard and Poor's and Moody's. Until recently, the rating process was not public. Even still, the factors or precise methodologies used by the agencies remain uncertain and analyst judgment remains important. We argue that, given uncertainty over the future paths of countries, the quality of the central bank governance serves as a useful heuristic for a stable and favorable country trajectory. In particular, the central bank's independence signals that the government is committed to general macroeconomic stability, including debt repayment. Additionally, central bank transparency clarifies who is the principal of the bank and provides information about how the central bank understands the economy and monetary policy. Finally, tensions between the central bank and the government, as reflected by irregular turnover of central bank governors, raise doubts about countries' future prospects. Empirically, we use a variety of models, including mediation analysis, to ensure that the effect we identify stems from the central bank governance itself, as a heuristic for the future paths of countries, and not the central bank's direct contribution to the macroeconomy, as reflected in the available data.

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The impact of central bank transparency on inflation expectations

Cited by 64 publications

References 18 publications

Trends in Monetary Policy Transparency^*

Trends in Monetary Policy Transparency^*

The implications of central bank transparency for uncertainty and disagreement

Sovereign credit ratings and central banks: Why do analysts pay attention to institutions?

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The impact of central bank transparency on inflation expectations

Cited by 64 publications

References 18 publications

Trends in Monetary Policy Transparency*

Trends in Monetary Policy Transparency*

The implications of central bank transparency for uncertainty and disagreement

Sovereign credit ratings and central banks: Why do analysts pay attention to institutions?

Contact Info

Product

Resources

About

Trends in Monetary Policy Transparency^*

Trends in Monetary Policy Transparency^*