Central bank transparency and inflation (volatility) – new evidence

Original Paper

Abstract

The last decades have shown a tendency towards higher central bank transparency. This leads to the question of how central bank transparency is entangled with price stability and inflation volatility. A plethora of studies analysed the relationship from a theoretical point of view and came to contradictory results. Thus, the article aims to analyse this question empirically and to better understand the mechanism behind it. Firstly, the results show that transparency reduces inflation expectations and inflation even if we control for other determinants. However, transparency alone is not sufficient to produce stable prices. Secondly, the paper proves that the effect on inflation mainly comes from reduced inflation expectations. Thirdly, we show that central bank transparency seems to diminish inflation uncertainty. This confirms the economic importance of central bank transparency.

Keywords

Central bank transparency Inflation Inflation volatility Determinants of inflation Central bank independence 

JEL classification

E31 E42 E58 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Institute of EconomicsFriedrich-Alexander University Erlangen-NürnbergErlangenGermany

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