Literature review : monetary policy transparency

This article provides an up-to-date review of the literature on the effect of the adoption of monetary policy transparency on a central bank and its effect on the economy. Monetary policy transparency is the disclosure of information by the central bank relevant to the conduct of monetary policy, thereby mitigating any asymmetrical information problem between the central bank and economic agents. From the time that Reserve Bank of New Zealand pioneered, this monetary policy framework, a myriad of research on its effects has been observed. First to be explored is the development of the theoretical literature, central bank independence, transparency and accountability. The empirical literature is examined and most important of all the key research by Cukierman and Meltzer (1986) and its impact on the evolving research of monetary policy transparency and the three branches of study that it has spawned; political, economic and policy transparency. The review finds that there is no single precise definition of transparency. That monetary policy transparency brings benefits to the economy that practises it such as low inflation and economic growth. It was found that monetary policy transparency has a positive effect on economic agent expectations.