The similarity of European central banks in terms of transparency and effectiveness

Keywords: central bank transparency, forward-looking communication, coefficients of similarity

Abstract

Research background: The previous studies on monetary policy transparency suggest that the dependence between the degree of transparency and monetary policy effectiveness exists. In this examination, we tackle this issue for the most recent sample with the application of novel transparency measure, which is de-signed to cover forward-looking policy approach.

Purpose of the article: We aim at evaluating forward-looking transparency of the European central banks and juxtapose it with their effectiveness in achieving monetary policy goals: price stability and output stabilization. The sample covers the central banks of the following countries: Sweden, the UK, Czechia, Hungary, Poland, and Romania. We also search for the patters of similarity in our sample.

Methods: We apply a novel, index-based transparency measure to assess central banks’ transparency. We also estimate inflation gap and the output gap. The methods used are based on data and statistical analysis. The comparison of the behaviour of individual central banks is carried out for the variables measuring transparency and inflation and output gaps. The similarity of the performance of individual central banks is assessed with the use of measures of the distance between objects, including our own measure.

Findings & Value added: Our results suggest the existence of different degrees of similarity in the sample, but some common tendencies can be found as well. For example, central banks with comparable transparency degree are found more similar. Novelty of the examination is related to our methodology: transparency and similarity measures applied and the most recent time span covered.

Downloads

Download data is not yet available.

References

Al-Mashat, R. A., Bulir, A., Dincer, N. N., Hlédik, T., Holub, T., Kostanyan, A., Laxton, D., Nurbekyan, A., Portillo, R. A., & Wang, H. (2018). An index for transparency for inflation-targeting central banks: application to the Czech National Bank. IMF Working Paper, 18/210. doi: 10.5089/9781484374832.

Bajalan, S., Raei, R., & Tehrani, R. (2012). Development of an index for measuring transparency of central banks. Argumenta Oeconomica, 1(28).

Bernardelli, M. (2018). Hidden Markov Models as a tool for the assessment of dependence of phenomena of economic nature. Acta Universitatis Lodziensis. Folia Oeconomica, 5(338). doi: 10.18778/0208-6018.338.01.

Blinder, A. S., Ehrmann, M., Fratzscher, M., De Haan, J., & Jansen, D.-J. (2008). Central bank communication and monetary policy: a survey of theory and evidence. Journal of Economic Literature, 46(4). doi: 10.1257/jel.46.4.910.

Campbell, J. R., Evans, C. L., Fisher, J. D. M., & Justiniano, A. (2012). Macroeconomic effects of Federal Reserve forward guidance. Brookings Papers on Economic Activity, 1. doi: 10.1353/eca.2012.0004.

Coenen, G., Ehrmann, M., Gaballo, G., Hoffmann, P., Nakov, A., Nardelli, S., Persson, E., & Strasser, G. (2017). Communication of monetary policy in unconventional times. ECB Working Paper Series, 2080. doi: 10.2139/ssrn.3043098.

Crowe, C., & Meade, E. E. (2008). Central bank independence and transparency: evolution and effectiveness. European Journal of Political Economy, 24(4). doi: 10.1016/J.EJPOLECO.2008.06.004.

Dincer, N. N., & Eichengreen, B. (2014). Central bank transparency and independence: updates and new measures. International Journal of Central Banking, 10(1). doi: 10.2139/ssrn.2579544.

Ehrmann, M., Eijffinger, S., & Fratzscher, M. (2012). The role of central bank transparency for guiding private sector forecasts. Scandinavian Journal of Economics, 114(3). doi: 10.1111/j.1467-9442.2012.01706.x.

Eijffinger, S. C. W., & Geraats, P. M. (2006). How transparent are central banks? European Journal of Political Economy, 22(1). doi: 10.1016/J.EJPOLECO.2005.09.013.

Geraats, P. M. (2002). Central bank transparency. Economic Journal, 112(483). doi: 10.1111/1468-0297.00082.

Geraats, P. M. (2014a). Monetary policy transparency. CESifo Working Paper Series, 4611.

Geraats, P. M. (2014b). Transparency, flexibility and macroeconomic stabilization. CESifo Working Paper Series, 4642.

Hubert, P. (2017). Central bank information and the effects of monetary shocks. Bank of England Working Paper, 672. doi: 10.2139/ssrn.3030816.

Próchniak, M., & Witkowski, B. (2016). On the use of panel stationarity tests in convergence analysis: empirical evidence for the EU countries. Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(1). doi: 10.12775/EQUIL.2016.004.

Siklos, P. L. (2011). Central bank transparency: another look. Applied Economics Letters, 18(10). doi: 10.1080/13504851.2010.515199.

Svensson, L. E. O. (2015). Forward guidance. International Journal of Central Banking, 4.

Sveriges Riksbank. (2017). The Riksbank’s experiences of publishing repo rate forecasts. Stockholm: Sveriges Riksbank.

Walesiak, M. (2016). The choice of groups of variable normalization methods in multidimensional scaling. Przegląd Statystyczny, 63(1).

Published
2019-09-30
How to Cite
Próchniak, M., & Szyszko, M. (2019). The similarity of European central banks in terms of transparency and effectiveness. Equilibrium. Quarterly Journal of Economics and Economic Policy, 14(3), 385-404. https://doi.org/10.24136/eq.2019.018
Section
Articles