Transparency, Disclosure, and the Federal Reserve

This paper provides an assessment of central bank transparency for the efficiency of monetary policy implementation, using the introduction of balance-of-risks assessments by the Federal Reserve as a testing device. We find that markets anticipated monetary policy decisions equally well under this new disclosure regime as before, but arrived at their expectations differently. Now, markets extract information from the statements, whereas before, they reverted to other types of Federal Reserve communication in the intermeeting periods. These findings suggest that the Federal Reserve's new disclosure practice may have improved transparency, as information is now released at an earlier time and with clearer signals.