Does Central Bank Transparency Reduce Interest Rates?

CentER Discussion Paper No. 2006-11

54 Pages Posted: 17 Apr 2006  

Petra M. Geraats

University of Cambridge - Faculty of Economics and Politics; CESifo (Center for Economic Studies and Ifo Institute)

Sylvester C. W. Eijffinger

Tilburg University (CentER) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Carin van der Cruijsen

De Nederlandsche Bank

Multiple version iconThere are 2 versions of this paper

Date Written: February 2006

Abstract

Central banks have become increasingly transparent during the last decade. One of the main benefits of transparency predicted by theoretical models is that it enhances the credibility, reputation, and flexibility of monetary policy, which suggests that increased transparency should result in lower nominal interest rates. This paper exploits a detailed transparency data set to investigate this relationship for eight major central banks. It appears that for all central banks, the level of interest rates is affected by the degree of central bank transparency. In particular, the majority of the improvements in transparency are associated with significant effects on interest rates, controlling for economic conditions. In most of these cases, interest rates are lower, often by around 50 basis points, although in some instances transparency appears to have had a detrimental effect on interest rates.

Keywords: central bank transparency, monetary policy, interest rates

JEL Classification: E52, E58

Suggested Citation

Geraats, Petra M. and Eijffinger, Sylvester C. W. and van der Cruijsen, Carin, Does Central Bank Transparency Reduce Interest Rates? (February 2006). Available at SSRN: https://ssrn.com/abstract=895460 or http://dx.doi.org/10.2139/ssrn.895460

Petra Geraats (Contact Author)

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
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Cambridge, CB3 9DD
United Kingdom
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Sylvester C. W. Eijffinger

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

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London, EC1V 3PZ
United Kingdom

Tilburg University (CentER) - Department of Economics ( email )

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Tilburg, 5000 LE
Netherlands
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+31 13 466 3042 (Fax)

Carin van der Cruijsen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

HOME PAGE: http://www.dnb.nl/en/onderzoek-2/onderzoekers/overzicht-persoonlijke-paginas/index.jsp

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