Working Paper: CEPR ID: DP5526
Authors: Petra M. Geraats; Sylvester C. W. Eijffinger; Carin A. B. van der Cruijsen
Abstract: Central banks have become increasingly transparent during the last decade. One of the main benefits of transparency predicted by theoretical models is that it enhances the credibility, reputation, and flexibility of monetary policy, which suggests that increased transparency should result in lower nominal interest rates. This paper exploits a detailed transparency data set to investigate this relationship for eight major central banks. It appears that for all central banks, the level of interest rates is affected by the degree of central bank transparency. In particular, the majority of the improvements in transparency are associated with significant effects on interest rates, controlling for economic conditions. In most of these cases, interest rates are lower, often by around 50 basis points, although in some instances transparency appears to have had a detrimental effect on interest rates.
Keywords: central bank transparency; interest rates; monetary policy
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased transparency (G38) | Lower nominal interest rates (E43) |
| Increased transparency (G38) | Reduced inflation expectations (E31) |
| Reduced inflation expectations (E31) | Lower nominal interest rates (E43) |
| Increased transparency (G38) | Improved flexibility of monetary policy (E52) |
| Improved flexibility of monetary policy (E52) | Lower nominal interest rates (E43) |
| Increased transparency (G38) | No significant effect on interest rates (E43) |
| Increased transparency (G38) | Detrimental effects on interest rates (E43) |