Does Greater Transparency Stabilize Output? Evidence from Panel Data

Ummad Mazhar ()

No 59, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: While transparency is following a non-decreasing trend across countries, the theoretical predictions concerning transparency and output volatility are mixed. We investigate the link between monetary policy transparency and output volatility in a panel data set of 80 countries from 1998-2007. Controlling the influence of other structural variables, we find a significant impact of transparency on output stability. Two novel aspects of our analysis are that (a) the effect of transparency on output volatility is independent of its effect on inflation; (b) its effect on output volatility is independent of its correlation with central bank independence. Our findings are robust against different measures of transparency, different samples, and different measures of output volatility.

Keywords: Transparency; great moderation; inventory changes; instrumental variables; endogeneity; Arellano-Bond estimator; 3SLS; panel data (search for similar items in EconPapers)
JEL-codes: C33 C36 E63 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-04
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