The Impact of Central Bank Transparency on Inflation Expectations

Posted: 3 Oct 2006


In contrast to previous empirical attempts to examine the effect of increasing central bank transparency on macroeconomic magnitudes, we investigate how the link between inflation and inflation expectations alters with increasing transparency. Our motivation stems from the belief that changes in the institutional features or operations of the Central Bank affect, first and foremost, the way that private agents form their expectations about the future behaviour of the Central Bank, and only through them, inflation. We apply the framework used by Levin et al (2004) who differentiate between inflation targeters and countries that do not have explicit quantitative objectives. They discover that inflation targeters benefit from a weaker link between inflation and expectations, and the more so for longer horizons. We, in turn, examine whether this observation still holds as central banks become more transparent. Our attempt is facilitated by the recent development of quantitative measures for transparency, used in the main text. We find that our results provide some evidence to substantiate the beneficial impact of transparency, on helping fix private sector expectations.

Keywords: Central Bank Transparency, Inflation Expectations, Monetary Policy

JEL Classification: E31, E52, E58

Suggested Citation

van der Cruijsen, Carin and Demertzis, Maria, The Impact of Central Bank Transparency on Inflation Expectations. European Journal of Political Economy, Forthcoming. Available at SSRN:

Carin van der Cruijsen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB


Maria Demertzis (Contact Author)

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium

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