The Impact of Central Bank Transparency on Inflation Expectations

Carin van der Cruijsen and Maria Demertzis

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: In contrast to previous empirical attempts to examine the effect of increasing central bank transparency on macroeconomic magnitudes, we investigate how the link between inflation and inflation expectations alters with increasing transparency. Our motivation stems from the belief that changes in the institutional features or operations of the Central Bank affect, first and foremost, the way that private agents form their expectations about the future behaviour of the Central Bank, and only through them, inflation. We apply the framework used by Levin et al (2004) who differentiate between inflation targeters and countries that do not have explicit quantitative objectives. They discover that inflation targeters benefit from a weaker link between inflation and expectations, and the more so for longer horizons. We, in turn, examine whether this observation still holds as central banks become more transparent. Our attempt is facilitated by the recent development of quantitative measures for transparency, used in the main text. We find that our results provide some evidence to substantiate the beneficial impact of transparency, on helping fix private sector expectations.

Keywords: Central Bank Transparency; Infl; ation Expectations; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac and nep-mon
Date: 2005-03
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Related works:
Journal Article: The impact of central bank transparency on inflation expectations (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:dnb:dnbwpp:031

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