Does Central Bank Transparency Reduce Interest Rates?

Petra Maria Geraats (), Sylvester C.W. Eijffinnger and Carin van der Cruijsen

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: Central banks have become increasingly transparent during the last decade. One of the main benefits of transparency predicted by theoreticalmodels 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 e¤ect on interest rates.

Keywords: central bank transparency; monetary policy; interest rates. (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
Date: 2006-02
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Related works:
Working Paper: Does Central Bank Transparency Reduce Interest Rates? (2006)
Working Paper: Does central bank transparancy reduce interes rates? (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:dnb:dnbwpp:085

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