Does Central Bank Transparency Reduce Interest Rates?

Posted: 15 Jun 2006

See all articles by Sylvester C. W. Eijffinger

Sylvester C. W. Eijffinger

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

Petra M. Geraats

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

Carin van der Cruijsen

De Nederlandsche Bank

Multiple version iconThere are 2 versions of this paper

Date Written: March 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

Eijffinger, Sylvester C. W. and Geraats, Petra and van der Cruijsen, Carin, Does Central Bank Transparency Reduce Interest Rates? (March 2006). CEPR Discussion Paper No. 5526. Available at SSRN: https://ssrn.com/abstract=909209

Sylvester C. W. Eijffinger (Contact Author)

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

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2411 (Phone)
+31 13 466 3042 (Fax)

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)

London
United Kingdom

Petra Geraats

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

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
+44 1223 335 295 (Phone)
+44 1223 335 475 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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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