The Role of Central Bank Transparency for Guiding Private Sector Forecasts

Central banks have become remarkably more transparent over the last few decades. In this paper, we study the effects of this evolution, focusing on whether enhanced central bank transparency lowers dispersion among professional forecasters of key economic variables. We use a large set of proxies for...

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Bibliographic Details
Published in:The Scandinavian journal of economics 2012-09, Vol.114 (3), p.1018-1052
Main Authors: Ehrmann, Michael, Eijffinger, Sylvester, Fratzscher, Marcel
Format: Article
Language:English
Subjects:
Analytical forecasting
Bank operations
C53
Central bank communication
Central banks
disagreement
Disclosure
E37
E52
Economic expectations
Economic forecasting
Economic forecasting models
Economic forecasts
Economic indicators
Economic indices
Effects
Forecasting models
Inflation
inflation targeting
Macroeconomics
monetary policy
Private sector
Statistical forecasts
Studies
survey expectations
Transparency
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Summary:Central banks have become remarkably more transparent over the last few decades. In this paper, we study the effects of this evolution, focusing on whether enhanced central bank transparency lowers dispersion among professional forecasters of key economic variables. We use a large set of proxies for central-bank transparency in 12 advanced economies. We find evidence for a sizeable effect (e.g., by announcing a quantified inflation objective, or by publishing inflation and output forecasts). However, there are decreasing marginal effects to increases in transparency, and the disagreement among the expectations of the general public is not affected. This suggests that there are possible limits to transparency.
ISSN:0347-0520
1467-9442
DOI:10.1111/j.1467-9442.2012.01706.x