Monetary policy opacity and disagreements in expectations about variables under central bank control

This paper presents empirical evidence of the effect of monetary policy opacity (lack of transparency) on macroeconomic variables' uncertainty (disagreement on inflation, interest rate, and exchange rate expectations). Once opacity in the conduct of monetary policy is related to information asymmetry problems between the monetary authority and the general public, and since opacity leads to uncertainties in the expectations formation process, this paper investigates the relationship between monetary policy opacity and disagreements in expectations about inflation, monetary policy interest rate and exchange rate. Hence, based on signal-to-noise ratios, we built a monetary policy opacity indicator using Brazilian monthly data from 2002 to 2020 that measures the level of mismatch between the agent's expectations regarding monetary policy authority interest rate and the actual value. According to evidence from several regression models, increasing monetary policy opacity increases uncertainty on interest rate expectations, on inflation expectations and exchange rate expectations.