Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of New York
Staff Reports
Central bank transparency, the accuracy of professional forecasts, and interest rate volatility
Menno Middeldorp
Abstract

Central banks worldwide have become more transparent. An important reason is that democratic societies expect more openness from public institutions. Policymakers also see transparency as a way to improve the predictability of monetary policy, thereby lowering interest rate volatility and contributing to economic stability. Most empirical studies support this view. However, there are three reasons why more research is needed. First, some (mostly theoretical) work suggests that transparency has an adverse effect on predictability. Second, empirical studies have mostly focused on average predictability before and after specific reforms in a small set of advanced economies. Third, less is known about the effect on interest rate volatility. To extend the literature, I use the Dincer and Eichengreen (2007) transparency index for twenty-four economies of varying income and examine the impact of transparency on both predictability and market volatility. I find that higher transparency improves the accuracy of interest rate forecasts for three months ahead and reduces rate volatility.


Download Full text
Download Full text
Cite this item
Menno Middeldorp, Central bank transparency, the accuracy of professional forecasts, and interest rate volatility, Federal Reserve Bank of New York, Staff Reports 496, 2011.
More from this series
JEL Classification:
Subject headings:
Keywords: Banks and banking; Central ; Disclosure of information ; Interest rates ; Forecasting ; Financial markets
For corrections, contact Amy Farber ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal