Central Bank Transparency: Causes, Consequences and Updates

We present updated estimates of central bank transparency for 100 countries up through 2006 and use them to analyze both the determinants and consequences of monetary policy transparency in an integrated econometric framework. We establish that there has been significant movement in the direction of greater central bank transparency in recent years. Transparent monetary policy arrangements are more likely to be found in countries with strong and stable political institutions. They are more likely to be found in democracies, with their culture of transparency. Using these political determinants as instruments for transparency, we show that more transparency in monetary policy operating procedures is associated with less inflation variability, though not also with less inflation persistence.