Peer Effects in Central Banking
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Peer Effects in Central Banking Roman Horvath1
© International Monetary Fund 2020
Abstract We provide a new explanation for why central banks have become transparent over the last three decades. We apply recently developed social interaction panel regression models for the observational data, which allow the identification of peer effects. The identification is based on variations in the past monetary policy regime exogenously determined with respect to transparency. Previous literature has argued that domestic factors such as macroeconomic stability were behind the trend toward greater transparency. In contrast, our results indicate that transparency primarily increased because of a favorable global environment and, importantly, because of the peer effects among central bankers. Central bankers thus learned from each other’s experiences regarding transparency. JEL Classificaion C31 · D83 · E58
We thank the Editor, Emine Boz, the two anonymous referees, Peter Claeys, Fabrizio Coricelli, Michal Franta, Martin Gregor, Christopher Hartwell, Klodiana Istrefi, Evzen Kocenda, Michele Lenza, Katarina Lucivjanska, Alexander Michaelides, Michael Moritz, Morten Ravn, Lucjan Orlowski, Jakub Seidler, Raju Singh, Cedric Tille, Borek Vasicek, Jan Zapal, and seminar participants at the Friedrich-Alexander-Universitat Erlangen-Nurnberg, Leibniz Institute for East and Southeast European Studies, Czech Economic Society conference, European Public Choice Society conference, ICMAIF conference, Society for the Study of Emerging Markets conference, European Association for Comparative Economic Studies conference, Networks, Complexity and Economic Development workshop, Swiss Society for Economics and Statistics annual conference, and Slovak Economic Association annual conference for their helpful comments. Pavla Brizova, Daniil Kashkarov, Tomas Krehlik, Boril Sopov, and Ivan Trestcov provided excellent research assistance. We acknowledge support from the Grant Agency of the Czech Republic 19-15650S. Online appendix is available at https://ies.fsv.cuni.cz/en/staff/horvath. Electronic supplementary material The online version of this article (https://doi.org/10.1057/s4130 8-020-00121-5) contains supplementary material, which is available to authorized users. * Roman Horvath [email protected] 1
Institute of Economic Studies, Charles University, Opletalova 26, 110 00 Prague 1, Czech Republic Vol.:(0123456789)
R. Horvath
1 Introduction Central banks have substantially increased the transparency of their policies during the last three decades (Dincer and Eichengreen 2014; Geraats 2009; Posen 2003). Currently, these policies are explained to the public in great detail. An extensive body of literature has analyzed the causes of this movement toward greater transparency (see Crowe and Meade 2008; Dincer and Eichengreen 2014, or Eijffinger and Geraats 2006, among others). This literature typically concludes that the determinants of transparency are largely internal to each domestic policy or to the domestic macroeconomic ch
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