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The Effect of Central Bank Transparency on Exchange Rate Volatility

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  • Christoph S. Weber

Abstract

The increase in central bank transparency was one of the main developments in central banking in the last two decades. This leads to the question of which effect central bank transparency has on the volatility of exchange rates. According to theoretical considerations, more information could either lead to more precise forecasts or to more noise trading. This raises the need for an empirical estimation of the relationship. The study shows that the effect of central bank transparency on exchange rate volatility depends on the development of countries. While there is no effect of central bank transparency in the composite sample and for developing countries, transparency increases exchange rate fluctuations in developed countries.

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  • Christoph S. Weber, 2017. "The Effect of Central Bank Transparency on Exchange Rate Volatility," Working Papers 174, Bavarian Graduate Program in Economics (BGPE).
    • Handle: RePEc:bav:wpaper:174_weber
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    Cited by:

    1. Kwabi, Frank O. & Boateng, Agyenim & Du, Min, 2020. "Impact of central bank independence and transparency on international equity portfolio allocation: A cross-country analysis," International Review of Financial Analysis, Elsevier, vol. 69(C).
    2. Zhang, Xiaoming & Liang, Qian & Lee, Chien-Chiang, 2023. "How does central bank transparency affect systemic risk? Evidence from developed and developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 101-115.
    3. Christoph S. Weber, 2020. "The unemployment effect of central bank transparency," Empirical Economics, Springer, vol. 59(6), pages 2947-2975, December.
    4. Victor Shevchuk & Roman Kopych, 2021. "Exchange Rate Volatility, Currency Misalignment, and Risk of Recession in the Central and Eastern European Countries," Risks, MDPI, vol. 9(5), pages 1-19, May.
    5. Tetiana Yukhymenko & Oleh Sorochan, 2024. "Impact of the central bank's communication on macro financial outcomes," IHEID Working Papers 01-2024, Economics Section, The Graduate Institute of International Studies.
    6. Candian, Giacomo, 2021. "Central bank transparency, exchange rates, and demand imbalances," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 90-107.
    7. Han, Chenyu & Wang, Yiming & Ning, Ye, 2019. "Comparative analysis of the multifractality and efficiency of exchange markets: Evidence from exchange rates dynamics of major world currencies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).
    8. Wen, Tiange & Wang, Gang-Jin, 2020. "Volatility connectedness in global foreign exchange markets," Journal of Multinational Financial Management, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Central Bank Transparency; Exchange Rate Volatility; Monetary Policy;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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