Central Bank Transparency and Short Term Interest Rate Forecasting Uncertainty

In 1994 the Federal Reserve System moved to a more transparent reporting of monetary policy. In this paper we first discuss the evolution of Federal Reserve transparency in U.S. and second we test its effectiveness. We assess the empirical impact of monetary policy transparency on the uncertainty about future monetary policy using T-bill rate forecast dispersions from the Survey of Professional Forecasters as a proxy for monetary policy uncertainty. We use descriptive statistics and single regression equations to evaluate the role of transparency. The empirical findings confirm that Federal Reserve transparency has reduced the uncertainty of future monetary policy anticipated by market participants