Six Practical Views of Central Bank Transparency

In the span of fifteen years, central bank transparency has gone from being highly controversial to motherhood and apple pie (one can insert analogous certitudes by country here). It is now an accepted broad goal to which all central banks pay at least lip service. Yet, like many other broad concepts in economic policy, such as “fiscal discipline” or “price stability,” what central bank transparency actually means remains rather open to debate. With the widespread adoption of inflation targeting, seen usually as an expression of increased central bank transparency, it is worthwhile to try to apply some clarity and rigor to this central banking concept du jour. Recent monetary theory has been unsuccessful in providing this clarity. The bulk of today’s theoretical models applied to central bank transparency – including in the formal analysis of inflation targeting – cast the issue as whether or not a representative agent of the public can discern the central bank’s “type,” wet or dry, that is soft or hard on inflation, and therefore whether it is more or less “credible.” This is simply the wrong question to frame, especially in the developed economies: no one really has any doubts about the commitment of any current central banks to low inflation, and any reasons for doubt that arose there would quickly become