The Evolution of Federal Reserve Transparency Under Greenspan and Bernanke

This paper traces the evolution of US central bank transparency and provides new evidence bearing on the question of whether the Fed has become more transparent in recent years. Before Alan Greenspan, who eventually became a grudging advocate of transparency, Federal Reserve Board chairmen typically prized secrecy over transparency. Ben Bernanke's empirical research led him to conclude that transparency actually enhances the effectiveness of monetary policy. Our original empirical approach incorporates reaction functions in comparing how the FOMC responds to a set of macroeconomic stimuli vs. how the futures market responds to the same variables. The evidence suggests that the Fed was not very transparent in the early Greenspan years, but became progressively transparent through Greenspan's later period and into the early, pre-crisis, Bernanke era.