Central Bank Transparency in Theory and Practice

37 Pages Posted: 13 Dec 2002

See all articles by Maria Demertzis

Maria Demertzis

Bruegel

Andrew J. Hughes

Cardiff Business School; Centre for Economic Policy Research (CEPR); Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: November 2002

Abstract

We study the effects of Central Bank transparency on inflation and the output gap. We thus first identify a small analytical model, which concludes that transparency affects the variability of inflation and output and not their average levels. Then we examine whether this conjecture holds empirically, employing the recently derived index of transparency by Eijffinger and Geraats. The empirical findings confirm that the averages are not affected by transparency. It does seem to explain however, about 50% of the variability in inflation. The relation between transparency and output volatility is less clear but appears to be positive rather than negative.

Keywords: Central bank, economic and political transparency, inflation, output gap performance

JEL Classification: E52, E58

Suggested Citation

Demertzis, Maria and Hughes Hallett, Andrew J., Central Bank Transparency in Theory and Practice (November 2002). CEPR Discussion Paper No. 3639. Available at SSRN: https://ssrn.com/abstract=361045

Maria Demertzis

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

Andrew J. Hughes Hallett (Contact Author)

Cardiff Business School ( email )

Aberconway Building
Cardiff CF10 3EU
United Kingdom
+44 292 087 001 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

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Nashville, TN 37235
United States
615-322-8539 (Phone)
615-343-8495 (Fax)

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