Actual versus Perceived Central Bank Transparency: The Case of the European Central Bank

Central banks have become more and more transparent about their monetary policy making process. In the central bank transparency lit- erature the distinction between actual and perceived central bank trans- parency is often lacking. However, as perceptions are crucial for the ac- tions of economic agents this distinction matters. A discrepancy between actual and perceived transparency may exist because of incomplete or in- correct transparency knowledge and other (psychological) factors. Even financial experts, the most important channel through which the central bank can influence the economy, might suffer from misaligned perceptions. We investigate the mismatch between actual and perceived transparency and its relevance by analyzing data of a Dutch household survey on the European Central Bank’s transparency. To benefit from higher trans- parency perceptions the European Central Bank might feel tempted to stress its transparency strengths, but hide its transparency weaknesses.Central bank transparency;Perceptions;Survey;CentERpanel;Behavioral Economics

The Economic Impact of Central Bank Transparency: A Survey

We provide an up-to-date overview of the literature on the desirabil- ity of central bank transparency from an economic viewpoint. Since the move towards more transparency, a lot of research on its e¤ects has been carried out. First, we show how the theoretical literature has evolved, by looking into branches inspired by Cukierman and Meltzer (1986) and by investigating several, more recent, research strands (e.g. coordination and learning). Then, we summarize the empirical literature which has been growing more recently. Last, we discuss whether: -the empirical research resolves all theoretical question marks, -how the ndings of the literature match the actual practice of central banks, and -where there is scope for more research.Central Bank Transparency;Monetary Policy;Survey

The Economic Impact of Central Bank Transparency.

During the last decades a lot of central banks have become more transparent about their monetary policy. The research question that is addressed in this book is whether central bank transparency is desirable from an economic viewpoint. It is shown that transparency increases have been beneficial. They have resulted in better anchored inflation expectations, lower inflation persistence, better aligned inflation perceptions, more trust in the central bank, and lower nominal interest rates. However, central banks would be wise to not strive for full transparency. A large amount of public information results in confusion or too much weight on the uncertainty surrounding forecasts, resulting in more persistent inflation. In short, the answer to the research question is "yes, but only up to a certain point".

Optimal Central Bank Transparency

Should central banks increase their degree of transparency any further? We show that there is likely to be an optimal intermediate degree of central bank transparency. Up to this optimum more transparency is desirable: it improves the quality of private sector inflation forecasts. But beyond the optimum people might: (1) start to attach too much weight to the conditionality of their forecasts, and/or (2) get confused by the large and increasing amount of information they receive. This deteriorates the (perceived) quality of private sector inflation forecasts. Inflation then is set in a more backward looking manner resulting in higher inflation persistence. By using a panel data set on the transparency of 100 central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while there are central banks that would benefit from further transparency increases, some might already have reached the limit.central bank transparency;monetary policy;inflation persistence

The economic impact of central bank transparency

During the last decades a lot of central banks have become more transparent about their monetary policy. The research question that is addressed in this book is whether central bank transparency is desirable from an economic viewpoint. It is shown that transparency increases have been beneficial. They have resulted in better anchored inflation expectations, lower inflation persistence, better aligned inflation perceptions, more trust in the central bank, and lower nominal interest rates. However, central banks would be wise to not strive for full transparency. A large amount of public information results in confusion or too much weight on the uncertainty surrounding forecasts, resulting in more persistent inflation. In short, the answer to the research question is "yes, but only up to a certain point"