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In the last decades, economists have created a number of indices of central bank transparency. However, all of them target a professional audience. We have built a new index to cover regulator efforts to communicate with a broader audience.
People’s inflation expectations are often based on the dynamics of prices for certain goods and services called “visible items”. For Russians, these visible items include durables such as cars and clothes, and also petrol, housing maintenance and public transport fares.
Have central banks opened up due to the increased openness of the authorities or the developments of new media? This is not the case. Openness was a response to unprecedented shocks that has helped to withstand such shocks when traditional tools have turned out to be ineffective.
The more clearly businesses and households understand the central bank's policy, the closer their inflation expectations are to the target. However, it is possible for monetary policy to be excessively transparent, which can bring more harm than benefit.
Negative news in the media covering the overall economic situation may act as a meaningful predictor of the dynamics of Russians’ inflation expectations and their current inflation perceptions. These are most driven by news about the ruble exchange rate and economic crisis.
A central bank may have an information advantage enabling it to better forecast macroeconomic indicators and, hence, make decisions that are not expected by the market. This advantage may exist both in reality and solely in the form of the market’s belief in it.
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