Transparent US monetary policy: theory and tests

Abstract

In 1994, the Federal Reserve System moved to a more transparent reporting of monetary policy. This article assesses the impact of monetary policy transparency on uncertainty about future monetary policy using T-bill rate forecast dispersions and ex post forecast errors from the Survey of Professional Forecasters as a proxy for monetary policy uncertainty. The empirical findings confirm that Federal Reserve transparency has reduced the uncertainty about future monetary policy.

Acknowledgements

The authors thank George Karras, George Kaufman, James Brox, Harvey Rosenblum for useful comments and Robert DeYoung who discussed this article and offered numerous helpful suggestions. The authors also thank Steve Yamarik who has helped them refocus the article. All remaining errors are the authors’ responsibility.