Communication of Central Banks as a Determinant of Credibility and Effectiveness of Monetary Policy
Purpose: The aim of the research is to explain, on theoretical and empirical grounds, the interdependencies between the communication of central banks, their transparency and credibility, and, consequently, the effectiveness of the monetary policy conducted by central banks. Design/Methodology/Approach: The research used research methods based on the analysis of the literature on the subject of banking and finance as well as statistical and econometric methods (Granger causality analysis and the vector autoregression model -VAR). Literature studies are aimed at answering the question of what is the relationship between transparency, the credibility of the central bank, and the efficiency of monetary policy in theoretical terms. And empirical research is aimed at confirming the hypothesis (H0) or rejecting the hypothesis (H1) about the causal relationships between the aforementioned variables. Findings: On the basis of theoretical and empirical research conducted, it turns out that in countries with a relatively lower level of economic development, lower economic stability, and relatively low central bank credibility, the greatest impact on the effectiveness of the monetary policy of the central bank is the transparency of the central bank, and in countries with relatively higher horizontal development and higher economic stability the greatest impact on the effectiveness of the monetary policy of the central bank is influenced by the credibility of the monetary institution. Practical Implications: The results of the conducted research may constitute a starting point for further, in-depth analysis of the interdependence between communication, credibility, and efficiency of central banks in countries with different levels of economic development. This issue seems to be particularly important in the period of turbulence in the international market in connection with rising global inflation caused by demand and supply shocks. Originality/Value: So far, the impact of communication on market behavior has not been fully analyzed by researchers. Furthermore, the results of the empirical analysis conducted in the paper provide a specific supplement to the existing economic knowledge regarding the impact of the central bank's communication with the market on the credibility and effectiveness of the monetary policy pursued.