The unemployment effect of central bank transparency

  • 33 Accesses


Most central banks have increased their transparency in the recent past. The question is whether higher transparency comes at some cost. Firstly, the article shows in a theoretical model that transparency does not necessarily lead to higher unemployment. Secondly, the paper analyses the main theoretical results of other authors that transparency leads to higher wages and unemployment (volatility). The empirical results show no evidence for these conjectures. In fact, the analyses show that transparency can reduce the detrimental effect that central bank independence has on employment. Furthermore, the estimations confirm that transparency does not lead to higher unemployment volatility.

This is a preview of subscription content, log in to check access.

Access options

Buy single article

Instant unlimited access to the full article PDF.

US$ 39.95

Price includes VAT for USA

Subscribe to journal

Immediate online access to all issues from 2019. Subscription will auto renew annually.

US$ 199

This is the net price. Taxes to be calculated in checkout.


  1. 1.

    A literature review covering all studies analysing the effect of CBT on inflation (volatility) is provided by Weber (2018).

  2. 2.

    If we assume that the price level of the previous period is 1, then \(\pi {}\) is not only the log price level of the current period, but at the same also approximately the inflation rate.

  3. 3.

    Van der Cruijsen and Eijffinger (2010) provide a thorough literature review on theoretical and empirical studies examining the effects of CBT up to 2008.

  4. 4.

    Summary statistics are presented in the Appendix.

  5. 5.

    The results of these tests are available in the Appendix.

  6. 6.

    The definitions of the different wage measures are available in the Appendix.

  7. 7.

    There might be concerns that inflation and unemployment are determined simultaneously which might blur the results presented in Table 2. However, the results are virtually the same when we exclude inflation.

  8. 8.

    In the case of the sub-indices, there is no evidence for a nonlinear relationship.

  9. 9.

    The studies by Eichler and Littke (2018) and Weber (2019) analyse how CBT affects exchange rate volatility although they come to different results.

  10. 10.

    The results of these estimations are available upon request.

  11. 11.

    These estimation results are available upon request.


  1. Aleksynska M, Schindler M (2011) Labor market regulations in low-, middle-and high-income countries: a new panel database. IMF working paper 11/154, International Monetary Fund

  2. Alesina A, Summers LH (1993) Central bank independence and macroeconomic performance: some comparative evidence. J Money Credit Bank 25(2):151–162

  3. Arellano M, Bond S (1991) Some tests of specification for panel data: Monte carlo evidence and an application to employment equations. Rev Econ Stud 58(2):277–297

  4. Caprio G, Klingebiel D, Laeven L, Noguera G (2005) Banking crisis database. In: Honohan P, Laeven L (eds) Systemic financial crises: containment and resolution. Cambridge University Press, Cambridge, pp 307–340

  5. Cecchetti SG, Krause S et al (2002) Central bank structure, policy efficiency, and macroeconomic performance: exploring empirical relationships. Rev Fed Reserve Bank Saint Louis 84(4):47–60

  6. Chortareas G, Stasavage D, Sterne G (2002) Monetary policy transparency, inflation and the sacrifice ratio. Int J Finance Econ 7(2):141–155

  7. Ciccarone G, Marchetti E (2008) Linear contracts, common agency and central bank preference uncertainty. Dipartimento di Economia Publica working paper 115, University of Rome La Sapienza, Department of Public Economics

  8. Ciccarone G, Marchetti E, Di Bartolomeo G (2007) Unions, fiscal policy and central bank transparency. Manch Schl 75(5):617–633

  9. Cukierman A (1992) Central bank strategy, credibility, and independence: theory and evidence. MIT Press, Cambridge

  10. Dai M, Spyromitros E (2010) Accountability and transparency about central bank preferences for model robustness. Scott J Polit Econ 57(2):212–237

  11. Dai M, Spyromitros E (2012) Inflation contract, central bank transparency and model uncertainty. Econ Model 29(6):2371–2381

  12. Demertzis M, Hallett AH (2007) Central bank transparency in theory and practice. J Macroecon 29(4):760–789

  13. Demirgüç-Kunt A, Detragiache E (2005) Cross-country empirical studies of systemic bank distress: a survey. Natl Inst Econ Rev 192(1):68–83

  14. Dincer NN, Eichengreen B (2007) Central bank transparency: where, why, and with what effects? NBER working paper 13003, National Bureau of Economic Research

  15. Dincer NN, Eichengreen B (2014) Central bank transparency and independence: updates and new measures. Int J Cent Bank 10(1):189–259

  16. Eichler S, Littke HC (2018) Central bank transparency and the volatility of exchange rates. J Int Money Finance 89:23–49

  17. Eijffinger S, Tesfaselassie MF (2007) Central bank forecasts and disclosure policy: Why it pays to be optimistic. Eur J Polit Econ 23(1):30–50

  18. Eijffinger SC, Geraats PM (2006) How transparent are central banks? Eur J Polit Econ 22(1):1–21

  19. Eijffinger SC, Hoeberichts M, Schaling E (2000) Why money talks and wealth whispers: monetary uncertainty and mystique. J Money Credit Bank 32(2):218–235

  20. Fatás A, Mihov I, Rose AK (2007) Quantitative goals for monetary policy. J Money Credit Bank 39(5):1163–1176

  21. Faust J, Svensson LE (2001) Transparency and credibility: Monetary policy with unobservable goals. Int Econ Rev 42(2):369–397

  22. Feldmann H (2011) The unemployment effect of exchange rate volatility in industrial countries. Econ Lett 111(3):268–271

  23. Feldmann H (2012) Inflation volatility and unemployment in industrial countries. Appl Econ 44(1):49–64

  24. Grüner HP (2002) How much should central banks talk? A new argument. Econ Lett 77(2):195–198

  25. Grüner HP, Hayo B, Hefeker C (2009) Unions, wage setting and monetary policy uncertainty. BE J Macroecon 9(1):1–25

  26. Gwartney J, Lawson R, Hall J (2014) Economic freedom of the world 2014 annual report. The Fraser Institute

  27. Hefeker C, Neugart M (2014) The influence of central bank transparency on labor market regulation. Manch Schl 82(1):17–32

  28. Herro N, Murray J (2013) Dynamics of monetary policy uncertainty and the impact on the macroeconomy. Econ Bull 33(1):257–270

  29. Hoeberichts M, Tesfaselassie MF, Eijffinger S (2008) Central bank communication and output stabilization. Oxf Econ Pap 61(2):395–411

  30. International Labour Organization (2014) Global wage report 2014/15: wages and income inequality. International Labour Office, Geneva

  31. Iversen T (1998) Wage bargaining, central bank independence, and the real effects of money. Int Organ 52(3):469–504

  32. Jensen H (2002) Optimal degrees of transparency in monetary policymaking. Scand J Econ 104(3):399–422

  33. Laeven L, Valencia F (2013) Systemic banking crises database. IMF Econ Rev 61(2):225–270

  34. Laskar D (2010) Central bank transparency and shocks. Econ Lett 107(2):158–160

  35. Maddala GS, Wu S (1999) A comparative study of unit root tests with panel data and a new simple test. Oxf Bull Econ Stat 61(S1):631–652

  36. Muto I (2013) Productivity growth, transparency, and monetary policy. J Econ Dyn Control 37(1):329–344

  37. Oostendorp RH (2012) The occupational wages around the world (oww) database: update for 1983–2008.

  38. Qin L, Sidiropoulos M, Spyromitros E (2010) Robust monetary policy under uncertainty about central bank preferences. Bull Econ Res 62(2):197–208

  39. Rodrik D (1999) Democracies pay higher wages. Q J Econ 114(3):707–738

  40. Rogoff K (1985) The optimal degree of commitment to an intermediate monetary target. Q J Econ 100(4):1169–1189

  41. Sánchez M (2011) Robust central banking under wage bargaining: is monetary policy transparency beneficial? Econ Model 28(1):432–438

  42. Sánchez M (2012) Inflation uncertainty and unemployment uncertainty: why transparency about monetary policy targets matters. Econ Lett 117(1):119–122

  43. Spyromitros E, Zimmer B (2009) Monetary accommodation and unemployment: why central bank transparency matters. Econ Lett 102(2):119–121

  44. Stiglitz J (1998) Central banking in a democratic society. De Economist 146(2):199–226

  45. Sørensen JR (1991) Political uncertainty and macroeconomic performance. Econ Lett 37(4):377–381

  46. Van der Cruijsen C, Demertzis M (2007) The impact of central bank transparency on inflation expectations. Eur J Polit Econ 23(1):51–66

  47. Van der Cruijsen C, Eijffinger S (2010) The economic impact of central bank transparency: a survey. In: Siklos PL, Bohl MT, Wohar ME (eds) Challenges in central banking: the current institutional environment and forces affecting monetary policy. Cambridge University Press New York, New York, pp 261–319

  48. Visser J (2015) ICTWSS data base version 5.0. Amsterdam. Amsterdam Institute for Advanced Labour Studies

  49. Walsh CE (1999) Announcements, inflation targeting and central bank incentives. Economica 66(262):255–269

  50. Weber CS (2018) Central bank transparency and inflation (volatility)—new evidence. Int Econ Econ Policy 15(1):21–67

  51. Weber CS (2019) The effect of central bank transparency on exchange rate volatility. J Int Money Finance 95:165–181

  52. Westelius NJ (2005) Discretionary monetary policy and inflation persistence. J Monet Econ 52(2):477–496

  53. Westelius NJ (2009) Imperfect transparency and shifts in the central bank’s output gap target. J Econ Dyn Control 33(4):985–996

Download references


The author wishes to thank Jürgen Kähler, Hermann Gartner, Katrin Wölfel, the reviewers and the editor of the journal, and participants of the 22nd BGPE Research Workshop, DIW Macroeconometric Workshop (2016), the 25th International Rome Conference on Money, Banking and Finance and research seminars at FAU Erlangen-Nuernberg for very useful comments and suggestions. Financial support by the BGPE for acquiring a data set is greatly appreciated.


Funding was provided by the Bavarian Graduate Program in Economics.

Author information

Correspondence to Christoph S. Weber.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic supplementary material

Below is the link to the electronic supplementary material.

Supplementary material 1 (pdf 107 KB)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Weber, C.S. The unemployment effect of central bank transparency. Empir Econ (2019) doi:10.1007/s00181-019-01741-1

Download citation


  • Central bank transparency
  • Unemployment
  • Unemployment variability
  • Determinants of unemployment rates

JEL Classification

  • E24
  • E42
  • E58