How open are central banks about their decisions?
Systematic assessment of monetary policy transparency
Central bank transparency measures how openly central banks share information about their decision-making processes, economic forecasts, and policy reasoning. More transparency generally leads to better market predictions and increased public trust in monetary policy.
This index systematically evaluates central bank transparency across five dimensions: political, economic, procedural, policy, and operational transparency. Based on the seminal work of Eijffinger and Geraats (2006) and updated through recent academic research.
We rank central banks on a scale of 0-15, where 15 means completely transparent and 0 means completely secretive. Here's how the major central banks stack up:
Rankings based on the extended Eijffinger-Geraats framework, incorporating recent methodological updates by Dincer, Eichengreen and Geraats (2022). Scores range from 0-15 across political, economic, procedural, policy, and operational transparency dimensions.
| Rank | Central Bank | Total Score | Political | Economic | Procedural | Policy | Operational | Transparency Level |
|---|---|---|---|---|---|---|---|---|
| 1 | Federal Reserve | 3/3 | 3/3 | 3/3 | 3/3 | 3/3 | Fully Transparent | |
| 2 | European Central Bank | 3/3 | 3/3 | 2/3 | 3/3 | 2/3 | Highly Transparent | |
| 3 | Bank of England | 3/3 | 2/3 | 2/3 | 2/3 | 1/3 | Moderately Transparent | |
| 4 | Bank of Japan | 2/3 | 2/3 | 2/3 | 2/3 | 1/3 | Moderately Transparent | |
| 5 | Bank of Canada | 2/3 | 2/3 | 2/3 | 1/3 | 1/3 | Moderately Transparent | |
| 6 | Reserve Bank of Australia | 2/3 | 2/3 | 1/3 | 1/3 | 1/3 | Moderately Transparent | |
| 7 | Reserve Bank of India | 2/3 | 1/3 | 1/3 | 1/3 | 1/3 | Limited Transparency | |
| 8 | People's Bank of China | 1/3 | 0/3 | 1/3 | 0/3 | 1/3 | Low Transparency |
Central bank transparency is evaluated across five distinct dimensions, each measuring different aspects of information disclosure. This systematic framework, developed by economists Eijffinger and Geraats, allows for consistent cross-country comparisons and tracks how transparency practices evolve over time.
Each central bank gets a score from 0-15 points total:
The transparency index evaluates 15 components across five dimensions, with each component scored 0, 0.5, or 1 based on specific disclosure criteria:
The framework evaluates transparency across five categories, each capturing distinct aspects of central bank communication and disclosure practices. These dimensions work together to provide a comprehensive assessment of how openly a central bank operates and communicates with the public.
Following Geraats (2002) theoretical framework, transparency is decomposed into five aspects corresponding to different stages of the monetary policy process, from objective setting through policy implementation and evaluation.
What we look for:
Example: "Our goal is to keep inflation at 2%" vs. vague statements about "price stability"
Components assessed:
Theoretical rationale: Clear objectives enhance credibility and anchor expectations (Kydland & Prescott, 1977; Barro & Gordon, 1983)
What we look for:
Example: Publishing detailed inflation and growth forecasts every quarter
Components assessed:
Research evidence: Economic transparency reduces forecast errors and improves expectation formation (Ehrmann et al., 2012)
What we look for:
Example: Publishing meeting minutes showing how each member voted
Components assessed:
Research evidence: Procedural transparency improves monetary policy effectiveness and democratic accountability (Blinder et al., 2008)
What we look for:
Example: "We raised rates because inflation is too high, and we may raise them again if needed"
Components assessed:
Research evidence: Policy transparency enhances monetary policy transmission and reduces market volatility (Gürkaynak et al., 2005)
What we look for:
Example: "Inflation rose more than we expected due to supply chain disruptions"
Components assessed:
Research evidence: Operational transparency improves central bank credibility and learning (van der Cruijsen & Eijffinger, 2010)
Central banks used to be very secretive. This changed dramatically in the 1990s when people realized that more openness actually helps the economy work better.
The movement toward central bank transparency represents one of the most significant institutional changes in monetary policy over the past three decades, driven by theoretical advances, empirical evidence, and democratic accountability pressures.
"The more mysterious, the better" - Central banks believed secrecy gave them more power to influence markets. The Federal Reserve didn't even announce interest rate changes!
Central bank mystique doctrine: Following Friedman's (1968) argument that monetary policy should maintain "constructive ambiguity," most central banks operated under extreme secrecy. The Federal Reserve only began announcing FOMC decisions in 1994.
New Zealand leads the way: In 1990, New Zealand became the first country to set a clear inflation target. Other countries quickly followed. The idea was that if people know what the central bank is trying to do, they'll help make it happen.
Inflation targeting revolution: New Zealand's 1990 adoption of explicit inflation targeting marked the beginning of the transparency era. The theoretical foundation was provided by time-consistency literature and empirical evidence on expectation anchoring.
Researchers start measuring transparency: Academic economists began systematically studying transparency, creating the scoring systems we still use today. They wanted to test whether more openness actually helps the economy.
Systematic measurement begins: Eijffinger and Geraats (2006) developed the first comprehensive transparency index. Concurrent research by Fry et al. (2000) and Siklos (2002) provided alternative measurement approaches, establishing transparency as a key research field.
The financial crisis tests transparency: The 2008 crisis showed that transparency wasn't just nice to have - it was essential. Central banks that communicated clearly during the crisis were more effective at calming markets.
Crisis communication imperative: The 2008 financial crisis demonstrated the critical importance of transparent crisis communication. Central banks rapidly expanded forward guidance and unconventional policy explanation, leading to new transparency challenges and opportunities.
Social media and real-time communication: Central banks started using Twitter, holding press conferences, and sharing information faster than ever. They also began sharing computer code and datasets online.
Digital transformation: Central banks embraced digital communication platforms, real-time data sharing, and open-source model publication. The Federal Reserve's publication of FRB/US model code exemplified this trend toward comprehensive transparency.
COVID-19 accelerates transparency: The pandemic showed the importance of clear, frequent communication. Central banks now communicate more often and in more detail than ever before.
Contemporary challenges: COVID-19 pandemic and subsequent inflation surge highlighted new transparency challenges including climate policy integration, digital currency communication, and managing uncertainty in highly volatile environments.
Decades of research have shown that when central banks are more transparent, good things happen for the economy:
A substantial body of academic research has documented the economic effects of central bank transparency across multiple dimensions including inflation dynamics, expectation formation, monetary policy effectiveness, and financial market functioning.
What researchers found: Countries with more transparent central banks have lower and more stable inflation.
Why this happens: When people know the central bank's goals, they adjust their expectations, making it easier to control prices.
What researchers found: Financial markets can better predict interest rate changes when central banks are transparent.
Why this matters: Less surprise means less market volatility and better economic planning.
What researchers found: People's predictions about inflation and economic growth are more accurate when central banks share information.
The result: Businesses and consumers make better decisions about spending and investing.
What researchers found: Transparent central banks need smaller interest rate changes to achieve the same economic effects.
Why this works: Clear communication amplifies the impact of policy actions.
While transparency is generally good, researchers have found some potential downsides:
Recent research has identified several potential costs and limitations of excessive transparency:
Central bank transparency continues to evolve. Here are the biggest trends shaping how central banks communicate today:
Current developments in central bank transparency reflect technological capabilities, changing economic challenges, and evolving democratic accountability expectations in the post-pandemic era.
Central bank transparency directly affects your investments, savings, and the broader economy. Here's what it means for different groups:
Central bank transparency has far-reaching implications for financial market functioning, monetary policy effectiveness, and global financial stability. Understanding these implications is crucial for investment strategy, risk management, and policy coordination.
This transparency index is based on academic research spanning over two decades. The scoring system has been tested and refined by economists worldwide to ensure it accurately measures what matters for economic outcomes.
The transparency index methodology has been extensively validated through peer review, cross-country analysis, and out-of-sample testing. The framework has been adopted by major international organizations including the IMF, World Bank, and BIS for policy analysis and institutional assessment.