Working Paper: CEPR ID: DP3639
Authors: Maria Demertzis; Andrew Hughes Hallett
Abstract: We study the effects of Central Bank transparency on inflation and the output gap. We thus first identify a small analytical model, which concludes that transparency affects the variability of inflation and output and not their average levels. Then we examine whether this conjecture holds empirically, employing the recently derived index of transparency by Eijffinger and Geraats. The em-pirical findings confirm that the averages are not affected by transparency. It does seem to explain however, about 50% of the variability in inflation. The relation between transparency and output volatility is less clear but appears to be positive rather than negative.
Keywords: central bank; economic and political transparency; inflation; output gap; performance
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Central Bank Transparency (E58) | Inflation Variability (E31) |
| Central Bank Transparency (E58) | Output Volatility (C69) |
| Lack of Transparency (D82) | Inflation Variability (E31) |
| Lack of Transparency (D82) | Output Volatility (C69) |
| Central Bank Transparency (E58) | Average Inflation (E31) |
| Central Bank Transparency (E58) | Average Output (E23) |