Does Forecasts Transparency Affect Macroeconomic Volatility in Developing Countries? Evidence from Quasi-Natural Experiments

21 Pages Posted: 7 Mar 2014

See all articles by Ummad Mazhar

Ummad Mazhar

Shaheed Zulkar Ali Bhutto Institute of Science and Technology

M'baye Kader

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Date Written: March 7, 2014

Abstract

In this paper, we empirically investigate the link between forecasts transparency and macroeconomic volatility as measured by inflation and output growth volatility in developing economies. We adopt the quasi-random controlled experiments methodology that divides our sample of 49 developing countries into three categories on the basis of their forecasts transparency. The first category is composed of central banks that are completely opaque over our sample period. The second type of countries is constantly transparent about their forecasts over the period of study while the third category includes central banks that have recently started to disclose their forecasts. In contrast to the previous literature, we interestingly find that increasing forecasts transparency unambiguously leads to higher macroeconomic volatility in developing countries. Indeed, we find that both groups of countries that constantly disclose their forecasts and that have only recently started to disclose their forecasts experience an increase in their macroeconomic volatility compared to the remaining group of countries that are completely opaque. Our results however indicate that forecasts transparency may have some stabilizing effects if and only if it is practiced along with other forms of institutional transparency.

Keywords: Forecasts transparency; monetary policy transparency, central banking, infation volatility, output volatility

JEL Classification: E58, E63, C33, C36

Suggested Citation

Mazhar, Ummad and Kader, M'baye, Does Forecasts Transparency Affect Macroeconomic Volatility in Developing Countries? Evidence from Quasi-Natural Experiments (March 7, 2014). Available at SSRN: https://ssrn.com/abstract=2405789 or http://dx.doi.org/10.2139/ssrn.2405789

Ummad Mazhar (Contact Author)

Shaheed Zulkar Ali Bhutto Institute of Science and Technology ( email )

90 and 100 Clifton
Karachi, ISLAMABAD 75600
Pakistan

M'baye Kader

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

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