شفافیت مطلوب بانک مرکزی

Should central banks increase their degree of transparency any further? We show that there is likely to be an optimal intermediate degree of central bank transparency. Up to this optimum more transparency is desirable: it improves the quality of private sector inflation forecasts. But beyond the optimum people might: (1) start to attach too much weight to the conditionality of their forecasts, and/or (2) get confused by the large and increasing amount of information they receive. This deteriorates the (perceived) quality of private sector inflation forecasts. As a result, inflation is set in a more backward looking manner resulting in higher inflation persistence. By using a large scale panel data set on the transparency of central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while several central banks would benefit from further transparency increases, some already have reached the optimal level.

Only a few decades ago monetary policy making was veiled in secrecy. In 1986 Goodfriend, summarized the arguments for secrecy that were used by the US Federal Reserve (Fed) in the Merrill versus FOMC court case. It encouraged further research on the desirability of secrecy because the theoretical arguments were inconclusive. Nowadays, central banks have made several steps towards transparent monetary policy regimes and they pay a lot of attention to day-to-day communication with the financial markets and the public at large. Central banks are likely to continue their transparency enhancing practices. Last year, the executive board of the Swedish Riksbank decided that voting records will be published at the same time as the monetary policy decision and not with a delay of a few weeks. A quite recent step of the Fed has been to increase and expand the content of the disclosed economic forecasts of the Federal Reserve Board members and the Reserve Bank presidents. Bernanke’s comments on this move point out that these transparency changes: “…represent just one more step on the road toward greater transparency at the Federal Reserve.” ( Bernanke, November 14th 2007). Not only is transparency used as a tool for independent central banks to be held accountable, it is often argued that transparency is also desirable from an economic point of view. Policymakers and researchers have discussed the possible economic effects of central bank transparency. Theoretically, the debate on the desirability of transparency is a continuing story, although the more recent literature yields outcomes in favor of more transparency. Most empirical studies conclude that previous transparency enhancements have been desirable from an economic standpoint. For example, they have resulted in improved anticipation of monetary policy and better anchored inflation expectations (van der Cruijsen and Demertzis, 2007). For a recent overview of the transparency literature we refer to van der Cruijsen and Eijffinger (2010b). We investigate whether it is desirable for central banks to increase their degree of transparency any further. We use two theoretical arguments in the transparency debate (uncertainty and confusion/information overload) to substantiate our case for the presence of an optimal intermediate degree of transparency. To our knowledge the empirical research on an optimal degree of central bank transparency has just started and focusses on analyzing the effects of particular aspects of transparency instead of the overall level. It shows us that most forms of transparency lead to better economic outcomes while some forms do not. Therefore it seems to be optimal to have an intermediate degree of transparency by limiting some forms of transparency. For example, Ehrmann and Fratzscher (2009b) demonstrate that limiting the communication in the week before Federal Open Market Committee meetings is a useful way to prevent market volatility and speculation. While the previous theoretical literature makes a case for or against one particular form of transparency, e.g. the publication of the goals of the central bank or the central bank’s forecasts of inflation, our analysis is about the optimal degree of overall monetary policy transparency. We relate central bank transparency to the quality of private sector forecasts. At low degrees of transparency, more information provision (e.g. about the complexity of monetary policy making and the conditionality of policy and economic forecasts) might be desirable because it could improve the private sector’s forecasts of inflation. However, at some degree of transparency more transparency might be detrimental because it could worsen these forecasts. We argue that for two reasons this is likely to hold. The first reason is that a lot of transparency could lead to uncertainty. By providing too much information, people start to focus too much on the complexity of monetary policy making and the uncertainty surrounding forecasts. While the actual quality of their forecasts might not be affected, agents perceive the quality of their forecasts to be worse. The second reason is that a high degree of transparency could lead to an information overload and confusion. The assumption that individuals are capable to absorb, understand, and weigh all the information that the central bank provides is probably too strong. Although some degree of transparency might help clarify matters, it is likely that a large amount of information disclosure would result in an information overload and confusion. At some level of transparency agents can not see the forest for the trees, which is detrimental for the quality of their inflation forecasts. Since the (perceived) quality of inflation forecasts is difficult to measure we use inflation persistence instead. Price setters are more inclined to determine price increases based on past inflation when they can not rely on their forecasts of future inflation. We use a New Keynesian model to illustrate that the higher the degree of backward lookingness of price setting is, the more persistent inflation is, which is detrimental for the society’s welfare. There is an optimal degree of central bank transparency at which inflation persistence is minimized. For central banks it is relevant to have more insight in inflation persistence: the speed with which inflation reacts to shocks hitting the economy. For central bankers it is easier to perform monetary policy when inflation persistence is low, because then steering inflation expectations is relatively effective and inflation can be brought in line with the target relatively quickly. Theoretically both the uncertainty – and the confusion/information overload – argument support the idea of an optimal intermediate degree of transparency. We can test this hypothesis empirically by relating transparency to inflation persistence. By allowing for a quadratic relationship between central bank transparency and inflation persistence we build further on the research of Dincer and Eichengreen (2007), who find a negative relationship between central bank transparency and inflation persistence. We find empirical support for our hypothesis by using their panel data set on the transparency of 100 central banks. Our finding that an intermediate degree of transparency (so neither full secrecy nor complete transparency) is optimal is robust to various settings. Given the nature of the data, however, it is difficult to be certain about the exact optimal degree of transparency. First, transparency is difficult to measure. Constructed indices are necessarily subjective in their choice of which aspects of transparency to include and how to weigh these components. Second, our empirical analysis has to be performed using transparency values that are observed in practice. Our baseline regressions lead to an optimum of 6, whereas theoretically it could be somewhere between 0 and 15. We have some reason to believe that the actual optimal degree of transparency might be higher. Low degrees of transparency are observed more often. The average degree of transparency in the sample is about 4 and very high transparency scores are not observed at all (13.5 is the highest value in our data set). A regression with only OECD countries results in an optimal degree of 7.5. The optimum is likely to be central bank-specific, which makes sense since the information processing capacity of its public differs too. Despite uncertainty about the exact optimum, our results do point out that while several central banks (especially those of developing countries) are likely to benefit from further transparency increases, there is a transparency level at which more public information is detrimental. Central banks would be wise to not become completely transparent. First we will expound our theoretical case for an optimal intermediate degree of central bank transparency (Section 2). We discuss all possible empirical relationships between central bank transparency and inflation persistence one might observe in practice, including our hypothesis: the optimal transparency regime. Then, in Section 3, we talk through our empirical analysis and present the actual empirical relationship we find. Last, we conclude in Section 4.

In this paper we have investigated whether it is desirable for central banks to increase their degree of transparency any further. While previous research analyzed the desirability of particular forms of transparency, we have focused on the optimal overall degree of monetary policy transparency. We have argued that some intermediate degree of transparency is desirable. By using two arguments, uncertainty and confusion/information overload, we have pointed out that there is likely to be an optimal intermediate degree of central bank transparency at which the quality of inflation forecasts is optimized. Although some degree of transparency might be helpful because it improves the quality of private sector inflation forecasts, a lot of transparency might be detrimental. First, it could lead to confusion/information overload. As an example consider the Financial Stability Reports published by various central banks. These reports contain a lot of information, which might complicate it for private agents to see the forest for the trees and harms their inflation forecasts. Second, although some information on the conditionality of intended policy and economic outcomes might improve the quality of private sector forecasts, too much information on uncertainty might lower the perceived quality of private sector inflation forecasts. As a consequence inflation will be formed in a relatively backward looking way resulting in high inflation persistence. Then it will be hard for central bankers to perform monetary policy. Steering inflation expectations will not be a very effective strategy. It will take a relatively long time before inflation is in line with the target again. We have tested whether our case for an optimal intermediate degree of transparency can be confirmed by the data. By linking transparency data from 1998 to 2005 for a large sample of central banks to inflation persistence we find support for our hypothesis. There is an optimal intermediate degree of transparency: neither full secrecy nor complete transparency is optimal. This result is robust to changes in the countries included and the lag specification chosen. The exact value we observe for the optimum should however be interpreted with care. Our baseline regression, including all countries, results in an optimum of 6. Theoretically, values between 0 and 15 are possible. Note that in practice, however, there is a high incidence of low degrees of central bank transparency whereas very high degrees of transparency (more than 13.5) are not observed at all. The exact value of the optimum we find depends on the countries we include. For example, when we consider only OECD countries the optimum shifts to 7.5. Because the optimal degree of transparency hinges on the capacity of the private sector to process information (our confusion-argument) it makes sense to observe a higher optimal degree of central bank transparency for OECD countries, since their inhabitants are better skilled to process information. In addition, we would like to note that there might be other ways in which transparency influences the economy, not only through affecting the quality of inflation forecasts. The optimal degree of transparency might shift when taking these effects into account. Most central banks have quite a low degree of transparency (the median degree of transparency in 2005 was 5) and our results suggest that more transparency is likely to be beneficial for these central banks. It could lead to a better quality of the private sector forecasts resulting in lower inflation persistence. However, several central banks (e.g. the Fed and the ECB) already have a high degree of transparency. It is good for these central banks to keep in mind that it is wise to not become completely transparent. A high degree of transparency could result in confusion and too much awareness of the central bank’s uncertainty. This might be detrimental for the effectiveness of monetary policy since inflation will be more persistent and therefore more difficult to affect. A caveat of our research is that central bank transparency is something which is difficult to measure objectively. Perhaps central banks have invented new ways to be transparent, which are not included in the transparency measures currently at hand. Note also that it is complicated to determine the weights that various manners of information disclosure should get. Our analysis suggests that it might be helpful for future research to construct alternative measures of transparency that measure the clarity of information instead of the quantity. In addition, future research might shed more light on the relative importance of the uncertainty channel and the information/overload channel and provide more insight on which specific information to disclose and which specific information to keep secret.