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The Implications of Central Bank Transparency for Uncertainty and Disagreement

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Abstract
Using survey data from 25 economies we provide evidence that greater transparency surrounding monetary policy reduces uncertainty of interest rates and inflation, primarily by reducing uncertainty that is common to agents rather than disagreement between agents. This suggests that studies that focus on disagreement as a proxy for uncertainty understate the benefits of monetary policy transparency. The adoption of inflation targets and forward guidance are both associated with lower uncertainty, although inflation targets have a stronger impact on reducing uncertainty than forward guidance. Moreover, there are diminishing benefits from ever higher levels of transparency. Taken as a whole, our results support the contention that clarity of communication is as important as the magnitude of transparency.

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  • Boonlert Jitmaneeroj & Michael Lamla, 2018. "The Implications of Central Bank Transparency for Uncertainty and Disagreement," KOF Working papers 18-445, KOF Swiss Economic Institute, ETH Zurich.
    • Handle: RePEc:kof:wpskof:18-445
    DOI: 10.3929/ethz-b-000305642
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    2. Monique Reid & Pierre Siklos, 2024. "Firm Level Expectations and Macroeconomic Conditions: Underpinnings and Disagreement," CAMA Working Papers 2024-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Fernandes, Cecilia Melo, 2021. "ECB communication as a stabilization and coordination device: evidence from ex-ante inflation uncertainty," Working Paper Series 2582, European Central Bank.
    4. Ruttachai Seelajaroen & Pornanong Budsaratragoon & Boonlert Jitmaneeroj, 2020. "Do monetary policy transparency and central bank communication reduce interest rate disagreement?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(3), pages 368-393, April.
    5. Makrychoriti, Panagiota & Pasiouras, Fotios, 2021. "National culture and central bank transparency: Cross-country evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    6. Nguyen Ba Trung, 2022. "Output fluctuations and portfolio flows to emerging economies: The role of monetary uncertainty," International Finance, Wiley Blackwell, vol. 25(3), pages 285-295, December.
    7. Collingro, Franziska & Frenkel, Michael, 2020. "On the financial market impact of euro area monetary policy: A comparative study before and after the Global Financial Crisis," Global Finance Journal, Elsevier, vol. 45(C).

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    Central bank transparency; Uncertainty; Disagreement; Monetary policy;
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