Central Bank Transparency and the Signal Value of Prices

Hyun Song Shin and

Hyun Song Shin Economic Adviser & Head of Research - Bank for International Settlements

Stephen Morris

SM

Stephen Morris Princeton University

Discussants: Benjamin M. Friedman and

BMF

Benjamin M. Friedman Harvard University

Christopher A. Sims

CAS

Christopher A. Sims

A CENTRAL BANK must be accountable for its actions, and its decisionmaking
procedures should meet the highest standards of probity and technical
competence. In light of the considerable discretion enjoyed by independent
central banks, the standards of accountability that they must meet are perhaps
even higher than for most other public institutions. Transparency allows
for democratic scrutiny of the central bank and hence is an important precondition
for central bank accountability. Few would question the proposition
that central banks must be transparent in this broad sense.
A narrower debate over central bank transparency considers whether a
central bank should publish its forecasts and whether it should have a
publicly announced, numerical target for inflation. This narrower notion
of transparency also impinges on issues of accountability and legitimacy,
but the main focus in this debate has been on the effectiveness of monetary
policy.