Central Bank Transparency and the Signal Value of Prices

must be accountable for its actions, and its decisionmak-ing procedures should meet the highest standards of probity and technical competence. In light of the considerable discretion enjoyed by independent central banks, the standards of accountability that they must meet are per-haps even higher than for most other public institutions. Transparency allows for democratic scrutiny of the central bank and hence is an important pre-condition for central bank accountability. Few would question the proposi-tion that central banks must be transparent in this broad sense. A narrower debate over central bank transparency considers whether a central bank should publish its forecasts and whether it should have a publicly announced, numerical target for inflation. This narrower notion of transparency also impinges on issues of accountability and legitimacy, but the main focus in this debate has been on the effectiveness of monetary policy. Proponents of transparency in this narrower sense point to the impor-tance of the management of expectations in conducting monetary policy. A central bank generally controls directly only the overnight interest rate, “an interest rate that is relevant to virtually no economically interesting transactions, ” as Alan Blinder has put it.1 The links from this direct lever of monetary policy to the prices that matter, such as long-term interest 1