XXV Edition

1-2 December 2016"

The Unemployment Effect of Central Bank Transparency

Weber Christoph, Friedrich-Alexander University Erlangen-Nürnberg

Most central banks around the world increased their transparency in the recent past. The greater openness of central bankers manifests itself in the publication of the central banks’ own macroeconomic forecasts or the disclosure of minutes and voting records of central bank committees. Clearly, the intention of this policy is to build credibility and achieve better economic outcomes. However, the effect of transparency on unemployment has largely been ignored in the literature. One exception is the study by Sørensen (1991) who argued that uncertainty about the preferences of the central bank lead unions to have lower wage claims which results in lower unemployment rates. However, there are almost no empirical analyses on this issue. Thus, this study tries to enhance the existing literature by estimating the effect of transparency on wages and unemployment within a panel data set. Thereby, it takes other determining factors of unemployment into account to separate the transparency effect from other causes of unemployment. The results show that there is no evidence that central bank transparency leads to higher wages. We can also reject the hypothesis that transparency induces higher unemployment. In fact, the analyses show that central bank transparency can reduce the detrimental effect that central bank independence has on employment.

Area: Monetary Policy and Central Banking

Keywords: Central Bank Transparency, Unemployment, Determinants of Unemployment Rates

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