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Does central bank transparency affect stock market volatility?

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  • Papadamou, Stephanos
  • Sidiropoulos, Moïse
  • Spyromitros, Eleftherios

Abstract

This paper addresses the issue of impacts of central banks’ transparency on stock market volatility. Using a simple theoretical macroeconomic model, we analytically find a negative link between stock prices volatility and central bank transparency. By applying panel data analysis on a set of 40 countries from 1998 to 2005, sufficient evidence for this negative relationship is provided, using three different measures of stock market volatility. Therefore, moving towards monetary policy transparency is recommended as stock market volatility can be reduced considerably, implying significant benefits for financial stability.

Suggested Citation

  • Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2014. "Does central bank transparency affect stock market volatility?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 362-377.
    • Handle: RePEc:eee:intfin:v:31:y:2014:i:c:p:362-377
    DOI: 10.1016/j.intfin.2014.05.002
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    More about this item

    Keywords

    Central bank transparency; Stock market volatility; Panel data;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G1 - Financial Economics - - General Financial Markets

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