Working Paper: CEPR ID: DP7585
Authors: Michael Ehrmann; Sylvester C. W. Eijffinger; Marcel Fratzscher
Abstract: There is a broad consensus in the literature that costs of information processing and acquisition may generate costly disagreements in expectations among economic agents, and that central banks may play a central role in reducing such dispersion in expectations. This paper analyses empirically whether enhanced central bank transparency lowers dispersion among professional forecasters of key economic variables, using a large set of proxies for central bank transparency in 12 advanced economies. It finds evidence for a significant and sizeable effect of central bank transparency on forecast dispersion, be it by means of announcing a quantified inflation objective, other forms of communication, or by publishing central banks? inflation and output forecasts. However, there also appear to be limits to central bank transparency, with decreasing marginal returns to enhancing (economic) transparency, and given our findings that disagreement among inflation expectations in the general public is not affected by the various central bank transparency measures analyzed in this paper.
Keywords: Central Bank Communication; Central Banking; Disagreement; Forecasting; Inflation Targeting; Monetary Policy; Survey Expectations; Transparency
JEL Codes: C53; E37; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| central bank transparency (E58) | disagreement among forecasters (E17) |
| central bank transparency (E58) | forecast dispersion (C46) |
| announcement of a quantified inflation objective (E31) | forecast dispersion (C46) |
| increased economic transparency (F69) | forecast dispersion (C46) |
| central bank transparency (E58) | dispersion of expectations among the general public (D84) |