Central Bank Transparency And Communication

Focusing on central bank transparency and communication, this paper constructs a general framework to incorporate the two concepts and the relative research areas. Next, the transparency status in Eastern and South-Eastern Asian is briefly provided. In the end, the author analyzes the transparency status of the People's bank of China.Central bank communication, which bridges the two dimensions of central bank transparency, could have considerable effects on the economy, via affecting the formation of markets expectations. This mechanism, together with central bank accountability and credibility, drives more and more central banks embracing to open up. Is more central bank transparency desirable from an economic point of view? Van der Cruijsen & Eijffinger (2007) observe a tendency that more recent work is in favor of transparency on the whole. However recent research shows that there might exist an optimal degree of central bank transparency. Central banks would be wise to not become completely transparent.When it comes to central bank communication, empirical evidence shows that since it has the ability to move financial markets, and the potential to help the monetary authorities to achieve macroeconomic objectives such as low and stable inflation, communication has already developed into a key instrument in the central bankers' toolbox in recent years.So far most empirical researches regarding central bank transparency and communication are focus on developed countries. The empirical research of central bank transparency and communication in Asia area—the developing world—are seldom conducted. This paper focuses on the empirical research of this special developing area, and the results are: Roughly speaking, in Eastern-Asia and South-Eastern Asia area, increased central bank transparency can be observed to go with decreased inflation and lower inflation persistence during 1998-2005. In particular, central bank transparency is significantly correlated with inflation variation, and this negative correlation is robust across different regression methods and samples. In addition, my tests preliminarily support the optimal degree of transparency hypothesis for the EA and SEA countries in particular.In the end, this paper provides a rough analysis about the central bank transparency and communication in China. Since the transparency status of the People's bank of China is quite low compared with other countries—including the developed countries and other Asia countries—we should take measures to improve the transparency degree of the People's bank of China.