Central bank transparency and exchange rate volatility effects on inflation-output volatility

Abstract

While the tendency towards more transparent central banks is irrefutable, the effects of more transparent monetary policies mainly on output volatility are not clear-cut. In this note, we estimate our panel for 36 countries over the period 1998-2005 which is characterized by significant changes in central bank transparency levels, using the Prais-Winsten method with PCSEs and controlling for the exchange rate volatility that positively affects inflation and output. We provide evidence in favor of transparency and exchange rate stability policies since they reduce both output and inflation volatility.