Optimal Central Bank Transparency

C.A.B. van der Cruijsen, S.C.W. Eijffinger, L.H. Hoogduin

Research output: Working paperDiscussion paperOther research output

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Abstract

Should 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. Inflation then is set in a more backward looking manner resulting in higher inflation persistence. By using a panel data set on the transparency of 100 central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while there are central banks that would benefit from further transparency increases, some might already have reached the limit.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages29
Volume2008-59
Publication statusPublished - 2008

Publication series

NameCentER Discussion Paper
Volume2008-59

Fingerprint

Central bank transparency
Transparency
Central bank
Private sector
Inflation forecasts
Inflation persistence
Perceived quality
Conditionality
Inflation
High inflation
Panel data

Keywords

  • central bank transparency
  • monetary policy
  • inflation persistence

Cite this

van der Cruijsen, C. A. B., Eijffinger, S. C. W., & Hoogduin, L. H. (2008). Optimal Central Bank Transparency. (CentER Discussion Paper; Vol. 2008-59). Tilburg: Macroeconomics.
van der Cruijsen, C.A.B. ; Eijffinger, S.C.W. ; Hoogduin, L.H. / Optimal Central Bank Transparency. Tilburg : Macroeconomics, 2008. (CentER Discussion Paper).
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van der Cruijsen, CAB, Eijffinger, SCW & Hoogduin, LH 2008 'Optimal Central Bank Transparency' CentER Discussion Paper, vol. 2008-59, Macroeconomics, Tilburg.

Optimal Central Bank Transparency. / van der Cruijsen, C.A.B.; Eijffinger, S.C.W.; Hoogduin, L.H.

Tilburg : Macroeconomics, 2008. (CentER Discussion Paper; Vol. 2008-59).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Optimal Central Bank Transparency

AU - van der Cruijsen, C.A.B.

AU - Eijffinger, S.C.W.

AU - Hoogduin, L.H.

N1 - Subsequently published in Journal of International Money and Finance, 2010 Pagination: 29

PY - 2008

Y1 - 2008

N2 - Should 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. Inflation then is set in a more backward looking manner resulting in higher inflation persistence. By using a panel data set on the transparency of 100 central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while there are central banks that would benefit from further transparency increases, some might already have reached the limit.

AB - Should 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. Inflation then is set in a more backward looking manner resulting in higher inflation persistence. By using a panel data set on the transparency of 100 central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while there are central banks that would benefit from further transparency increases, some might already have reached the limit.

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KW - inflation persistence

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CY - Tilburg

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van der Cruijsen CAB, Eijffinger SCW, Hoogduin LH. Optimal Central Bank Transparency. Tilburg: Macroeconomics. 2008. (CentER Discussion Paper).