The transparency of monetary policy and the effect of exchange rate pass-through

Abstract

The work is devoted to the study of the influence of changes in the transparencyof monetary policy on the effect of exchange rate pass-through in consumer prices. Based on econometric modeling of cross-country panel data, it is shown that an increase in the transparency of communication between the central bank and the population leads to a decrease in the elasticity of domestic prices with respect to the exchange rate in countries that target inflation and adhere to other monetary policy regimes. The effect is observed for both developed and developing economies; it is stronger in the second case. The obtained result can be interpreted as an argument in favor of the advisability of the Bank of Russia transition from a verbal description of its future actions to the publication of a quantitative forecast of the interest rate trajectory.