Why Adopt Transparency? The Publication of Central Bank Forecasts
41 Pages Posted: 12 Dec 2002
Date Written: January 2001
Recently, several central banks have abandoned the usual secrecy in monetary policy and become very transparent. This paper provides an explanation for this puzzling fact, focussing on the disclosure of central bank forecasts. It shows that transparency reduces the inflationary bias and gives the central bank greater flexibility to respond to shocks in the economy. Furthermore, it makes it easier for a central bank to build reputation. To achieve these benefits of transparency it is generally necessary to publish the conditional central bank forecasts for both inflation and output.
Keywords: Transparency, monetary policy
JEL Classification: E52, E58
Suggested Citation: Suggested Citation