The effect of central bank transparency on inflation and interest rate variables: The case of OECD countries and Turkey

Transparency is the symmetric information between policymaker and economic actors. Central banks have given more information about their monetary policies to the public and have become more transparent, lately. The most important reasons of this process are political and financial liberalization, importance of expectations in monetary policy, spreading of inflation targeting regime among central banks and changing of information technology. Theoretical literature emphasize that transparency may increase the predictability and credibility of monetary policy. Thus, it can help the expectation management which provides central banks attain their objectives by means of policy efficiency. The aim of this study is to determine the effects of central bank transparency on inflation and interest rate variables in the context of expectations management, monetary policy predictability and efficiency. In addition to this, we want to make some proposals about monetary policies. For this reason, we investigate the effects of central bank transparency which measured index method on inflation, inflation persistency, inflation volatility, interest rates and their volatilities by using panel data analysis in the OECD countries. Also, we search the effects of Central Bank of the Republic of Turkey transparency on inflation expectations, inflation volatility, expectation errors and interest rate by using time series. According to the findings, central bank transparency can help expectation management by decreasing inflation persistency. Thus, it may help the fighting against inflation. In addition to, transparency may increase the monetary policy predictability by decreasing volatilities of inflation and interest rates. Additionally, economic and financial risk indexes are efficient on almost all variables in the research. This situation means that, especially in financial crisis terms central banks may need to have secondary objective like financial stability besides price stability. Key Words: Central Bank Transparency, Monetary Policy, Inflation Targeting, Panel Data Analysis, Time Series Analysis