The relationship between central bank transparency, credit default swap and financial stability: An application on OECD countries

The concept of transparency refers to the openness, understandability and accessibility of economic and political decisions. Central bank transparency indicates that banks share their policies, decision-making processes and economic forecasts with the public in a clear and understandable manner. This transparency allows market participants to better understand the bank's actions and shape their expectations accordingly. A credit default swap is a derivative instrument in which credit risk is transferred between the buyer and seller. These tools help distribute and manage credit risk in markets. Credit default swaps and central bank transparency are also important for the functioning and stability of financial markets. Sharing central bank policies and economic forecasts with the public in a clear and understandable manner enables market participants to make more informed decisions and increases financial stability by reducing uncertainty in the markets. The study primarily aims to create the financial stability index of OECD member countries for the 2008-2021 period. In this context, financial stability indices of countries were obtained and interpreted by using a total of 14 indicators under three categories: financial development, financial soundness and financial fragility. In addition, in the study, the relationship between central bank transparency and credit default swaps and financial stability of OECD member countries is examined through panel data analysis. As a result of Emirmahmutoğlu and Köse (2011) panel causality test, a one-way causality relationship was determined from central bank transparency to financial stability and from credit default swap to financial stability. As a result, economic policymakers should proactively identify and address factors that threaten financial stability. When making policy decisions, the relationship of concepts such as central bank transparency and credit default swaps with financial stability should be taken into account. This is important in terms of preventing possible financial crises and ensuring economic stability.