Central bank transparency and market efficiency: An econometric analysis

Blinder (1998) argues that more open public disclosure of central bank policies may enhance the efficiency of markets. We examine this claim by studying whether the Federal Reserve System's 1994 policy shift toward more open disclosure improved or worsened the predictability of financial markets. Employing methods analogous to Campbell and Shiller (1991), we find that since 1994, the forecasting error has decreased for interest rates on U.S. bonds of most maturity lengths, and that the expectations hypothesis has performed better at the low end of the yield curve. These findings are inconsistent with the view that increased central bank transparency will decrease the efficiency of financial markets. Copyright Springer 2002