Central banks are unequivocally moving towards greater openness or to more transparent monetary policy frameworks by engaging in, among other things, inflation targeting, publishing inflation forecasts and increasing the number of public statements from bank officials. Whether such moves are desirable or not, or to what degree they are desirable, is still open to question. The theoretical studies in favor of and/or against more transparency in central banking, although ample, are not unanimous in their findings, and empirical tests of these arguments are scarce, mostly because transparency in the monetary policy is a concept hard to measure.
The existing transparency measures have some limitations. Most of them are not in time series form and therefore can only be used for cross-sectional studies and for a limited number of hypotheses. They are based on the quantity, timeliness, and periodicity of information provided by central banks and finally, they are somehow static. In general, the existing measures of transparency can be divided into four groups:
(i) Descriptive accounts of transparency: This kind of transparency measure concentrates on strategies that central bankers follow in order to communicate with the public. It mostly includes do's and don'ts of the central bankers' actions, see, e.g., Blinder et al. (2001). The main problem with this measure is that no index can be derived/constructed from these do's and don'ts.
(ii) Central bank surveys or self-evaluating transparency indexes: A series of surveys are sent to central banks to investigate the extent to which they communicate their private information to the public, including the degree to which they are following the Code of Good Practices on Transparency in Monetary and Financial Policies developed by the International Monetary Fund (IMF), see, e.g., Fry et al. (2000) and Sundararajan et al. (2003). With this type of measures there is a possibility of misunderstanding the survey questions and/or manipulating responses by the central banks to obtain an appropriate score.
(iii) Official documents and information: Researchers construct indexes of transparency of monetary policy by evaluating the behavior of central bankers (e.g., whether they give speeches regularly or not) and the type and frequency of documents the central bank makes available to the public (such as minutes from meetings, inflation reports, etc.), see, e.g., Eijffinger and Geraats (2002) and de Haan and Amtenbrink (2002). One possible weakness with this approach is that the particular items looked at and the weight assigned to them by each set of authors may differ for purely subjective reasons.
