Monetary Policy Transparency In International Comparative Studies

Transparency of monetary policy refers to the effective communications and mutual understanding between the central bank and the public based on symmetric information regarding the monetary policy. The concept of transparency originates from such economic theories as information economics, rational expectation and public choice, etc. The implementation of transparency result from the inflationary pressure brought about by the uncertainty of monetary policy. Guidelines on Good Practices of Monetary and Financial Policy promulgated by the IMF in September 1999 specifies the ideal transparency implementation of the central bank in its monetary policy operation and hence demonstrates the value of the transparency in monetary policy.On the basis of literature review, this paper makes a systematic investigation into the transparency implementation of the main industrialized nations from a comparative perspective. It analyzes the key factors in determining the transparency implementation and forth brings the construction path of transparency in monetary policy operation of our country. The following are the conclusions of this paper:First, theoretically, transparency is a two-edged sword. For one thing, the enhancement of transparency will help improve the reputation of the central bank and solve the operational problem of dynamic inconsistency. Besides, it will also play a positive role in the formation of rational market expectation so as to increase the efficiency of the monetary policy. In the meanwhile, efficiency of the financial market will also be boosted with reduced abnormal economic fluctuation. For another, higher level of transparency might lead to increased forward-looking expectation. Consequently, it is likely that the overreaction of the public to the information gives rise to the loss in the efficiency of the monetary policy, worsened economic fluctuation in the short term and the loss of the public welfare at large. Therefore, the pursuit of transparency in monetary policy operation is an effective measure to increase the efficiency of monetary policy rather than the fundamental goal and attention should be given to the level of transparency that is appropriate.Second, based on the transparency implementation of monetary policy in the main industrialized nations, these nations have all witnessed increasing transparency in monetary policy operation in the recent ten years although the actual effects of enhanced transparency are still to be known. In line with their own political and economic environments, they have taken different paths in pursuing more transparent monetary policies on account of the independence and responsibility of the central bank as well as the reputation of the monetary policy. Therefore, there is no standard mode in transparency enhancement. For the central banks, the optimal transparency mode should be consistent with the respective situation of a nation and its existent monetary policy framework.Third, at present, the Chinese economy is undergoing a transitional period and the economic environment is comparatively perplexing with relatively low level of central bank independence and powerful fiscal policy. The transparency construction of monetary policy in our country should draw on the advanced international experiences and embody Chinese features. Efforts should be made in increasing the relative independence of the central bank, improving the information disclosure mechanism of monetary policy, enhancing the publicity of financial knowledge and upgrading the skills in exchange and communication.