A Literature Overview of the Central Bank's Knowledge Transparency

Abstract

Central bank transparency has received great deal of attention in recent years. However, the theoretical literature has not yet reached a consensus on the effect a higher degree of transparency has on economic welfare. In this paper, we focus one aspect of transparency, the transparency of ‘knowledge’ which refers to the disclosure of central bank forecasts about economic variables. In view of the ongoing theoretical disagreement concerning the economic effects of transparency, this paper provides an overview of the literature by looking first at the earlier studies built on the time-inconsistency models in the Barro-Gordon theoretical framework. We then investigate more recent strands of literature, which rely on the assumption that central banks are credible. Last, we conclude on the economic reasons for the mixed results of models and briefly mention the scope for further research.