Forecast Transparency and Inflation Volatility: Empirical Evidence from Developing Countries

Ummad Mazhar () and M’baye Cheick Kader ()
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M’baye Cheick Kader: African Management Institute, Bamako, Mali

Global Economy Journal, 2016, vol. 16, issue 4, 769-787

Abstract: The desirability of transparency in its varied aspects is not always certain particularly for developing countries. This paper empirically investigates the link between forecast transparency and inflation volatility in a relatively homogenous sample of 41 developing economies over 1998–2007. It classifies central banks into transparent and opaque groups on the basis of their forecast transparency. The differential effect of the forecast transparency is then estimated both at a point in time and over time while controlling for the relevant factors. The main finding of the paper is that forecast transparency stabilizes inflation. In addition, we find that the stabilizing effect of disclosing numerical forecasts gets stronger over time supporting the theoretical insight that forecast transparency allows reputational externalities, and minimizes the likelihood of policy inconsistency. The results are robust against different specifications of the empirical model.

Keywords: transparency; monetary policy; central bank forecasts; inflation volatility (search for similar items in EconPapers)
JEL-codes: C33 C36 E58 E63 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1515/gej-2016-0060

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