The implications of central bank transparency for uncertainty and disagreement

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Using survey data from 25 economies we provide evidence that greater transparency surrounding monetary policy reduces uncertainty of interest rates and inflation, primarily by reducing uncertainty that is common to agents rather than disagreement between agents. This suggests that studies that focus on disagreement as a proxy for uncertainty understate the benefits of monetary policy transparency. The adoption of inflation targets and forward guidance are both associated with lower uncertainty, although inflation targets have a stronger impact on reducing uncertainty than forward guidance. Moreover, there are diminishing benefits from ever higher levels of transparency. Taken as a whole, our results support the contention that clarity of communication is as important as the magnitude of transparency.

Original languageEnglish
JournalJournal of International Money and Finance
Pages (from-to)222-240
Number of pages19
Publication statusPublished - 01.02.2019
Externally publishedYes

    Research areas

  • Economics - Central bank transparency, Disagreement, Monetary policy, Uncertainty