Central bank transparency and the volatility of exchange rates

Stefan Eichler and Helge C. N. Littke

No 22/2017, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We analyze the effect of monetary policy transparency on bilateral exchange rate volatility. We test the theoretical predictions of a stylized model using panel data for 62 currencies from 1998 to 2010. We find strong empirical evidence that an increase in the availability of information about monetary policy objectives decreases exchange rate volatility. Using interaction models, we find that this effect is more pronounced for countries with a lower flexibility of goods prices, a lower level of central bank conservatism, and a higher interest rate sensitivity of money demand.

Keywords: central bank transparency; exchange rate volatility; panel model (search for similar items in EconPapers)
JEL-codes: E58 F31 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:222017

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