Central Bank Transparency: A Market Indicator

Peter Howells () and Iris Biefang-Frisancho

No 305, Working Papers from Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol

Abstract: It is widely believed that monetary policy outcomes are generally enhanced if the conduct of policy by the central bank is widely understood by other agents in the economy. This widespread belief has given rise to a number of attempts to measure the ‘transparency’ of monetary policy in various regimes. Unsurprisingly, the degree of transparency depends upon a variety of institutional arrangements peculiar to each monetary regime. Thus, the dominant approach to measurement relies upon identifying a range of legal and other formal characteristics - in a manner very reminiscent of the central bank independence literature of fifteen years ago. This approach is not entirely satisfactory, however, since it is agents’ perceptions of the degree of transparency that matters if transparency is to have any effect on policy outcomes. This has given rise to other methods of measurement which survey the views of agents. While this is potentially more relevant, it is obviously possible that their statements may differ from their actions. This paper takes a different approach which is to look at the extent to which money market interest rates anticipate central bank announcements of changes in policy rate in the case of the Bank of England (post-1997), the ECB and the (ex-) Bundesbank. In contrast with earlier studies which all claim to find significant (but not consistent) differences between the degree of transparency in each of these regimes, evidence from money market behaviour suggests that the degree of transparency is comparable across all three.

Keywords: Central Bank Transparency; Market; Indicator (search for similar items in EconPapers)
JEL-codes: E58 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2003-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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