The unemployment effect of central bank transparency

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Most central banks have increased their transparency in the recent past. The question is whether higher transparency comes at some cost. Firstly, the article shows in a theoretical model that transparency does not necessarily lead to higher unemployment. Secondly, the paper analyses the main theoretical results of other authors that transparency leads to higher wages and unemployment (volatility). The empirical results show no evidence for these conjectures. In fact, the analyses show that transparency can reduce the detrimental effect that central bank independence has on employment. Furthermore, the estimations confirm that transparency does not lead to higher unemployment volatility.

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  1. 1.

    A literature review covering all studies analysing the effect of CBT on inflation (volatility) is provided by Weber (2018).

  2. 2.

    If we assume that the price level of the previous period is 1, then \(\pi {}\) is not only the log price level of the current period, but at the same also approximately the inflation rate.

  3. 3.

    Van der Cruijsen and Eijffinger (2010) provide a thorough literature review on theoretical and empirical studies examining the effects of CBT up to 2008.

  4. 4.

    Summary statistics are presented in the Appendix.

  5. 5.

    The results of these tests are available in the Appendix.

  6. 6.

    The definitions of the different wage measures are available in the Appendix.

  7. 7.

    There might be concerns that inflation and unemployment are determined simultaneously which might blur the results presented in Table 2. However, the results are virtually the same when we exclude inflation.

  8. 8.

    In the case of the sub-indices, there is no evidence for a nonlinear relationship.

  9. 9.

    The studies by Eichler and Littke (2018) and Weber (2019) analyse how CBT affects exchange rate volatility although they come to different results.

  10. 10.

    The results of these estimations are available upon request.

  11. 11.

    These estimation results are available upon request.


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The author wishes to thank Jürgen Kähler, Hermann Gartner, Katrin Wölfel, the reviewers and the editor of the journal, and participants of the 22nd BGPE Research Workshop, DIW Macroeconometric Workshop (2016), the 25th International Rome Conference on Money, Banking and Finance and research seminars at FAU Erlangen-Nuernberg for very useful comments and suggestions. Financial support by the BGPE for acquiring a data set is greatly appreciated.


Funding was provided by the Bavarian Graduate Program in Economics.

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Correspondence to Christoph S. Weber.

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Weber, C.S. The unemployment effect of central bank transparency. Empir Econ (2019).

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  • Central bank transparency
  • Unemployment
  • Unemployment variability
  • Determinants of unemployment rates

JEL Classification

  • E24
  • E42
  • E58