The effect of central bank transparency on exchange rate volatility

The increase in central bank transparency has been one of the main developments in central banking in the past two decades. This leads to the question of the effect of central bank transparency on the volatility of exchange rates. According to theoretical considerations, more information could lead to either more precise forecasts or more noise trading. This raises the need for an empirical estimation of the relationship. The present study shows that the effect of central bank transparency on exchange rate volatility depends on a country's development. While there is no effect of central bank transparency in the full sample and for developing countries, transparency increases exchange rate fluctuations in developed countries. (C) 2019 Elsevier Ltd. All rights reserved.