In this thesis, I look at transparency in theory and practice in Norges Bank and the Riksbank, and compare the two banks’ transparency policy, with a particular focus at transparency regarding the monetary policy meeting and future policy inclination.
When it comes to communicating future policy intentions, the two central banks are amongst the most transparent in the world, as they publish forecasts of their own behavior. Some observers view this practice of publishing endogenous forecasts for the policy rates as the last frontier of transparency (Blinder et al, 2008). Hence, in this area, they both represent the extreme point on the transparency scale. In this thesis, I take closer look at the reasoning behind publishing endogenous policy rate paths, and review some empirical evidence on how this stabilizes inflation expectations and make central banks more credible and predictable.
As regards transparency about the monetary policy meeting, however, Norges Bank and the Riksbank represent the lower and upper range of the scale, respectively. While the Riksbank publishes both attributed minutes and attributed voting records from the monetary policy meetings, Norges Bank publishes neither. I explain how this difference in practice is influenced by the different institutional arrangements in the two banks. The choice of communication policy also stems from different views on what provides the best monetary policy decisions. Since the Riksbank is one of few central banks to attribute the minutes of the monetary policy meeting, I focus on this feature if the transparency policy, and hence the effects of the said attribution.
I ask what explains the differences between their transparency policies, and evaluate how the policies affect the efficiency of the central banks’ internal decision making process and external communication. In addition, I explain why several authors claim that there is an optimal, intermediate degree of central bank transparency.Doing this implies evaluating both positive and normative arguments, as done in other reviews and discussions of transparency (Cuikerman, 2009). I use relevant theoretical- and descriptive literature, applying amongst other things a model of decision making where the agents have career concerns. This indicates that a combination of policy makers with career concerns and extensive transparency can have adverse effects on the decision making process. I also use some available empirical investigations and surveys to see if the theoretical propositions can be traced in the practice of a transparent monetary policy (of the Riksbank and the American Federal Reserve, in particular).
I find that, as in most reviews of central bank transparency, neither the theories nor the practices of central bank transparency so far have rendered a clear conclusion as to the optimal design of transparency policy. What is regarded as optimal openness and communication is influenced by institutional arrangements, the general monetary policy framework and policy goals. Finally, the debate on optimal transparency is, to a large degree, influenced by the beliefs on the gains and costs of transparency.