Does Central Bank Transparency Curb Foreign Exchange Vulnerability?

Abstract This study investigates the impact of central bank transparency (CBT) on foreign exchange market vulnerability, measured by exchange market pressure (EMP). Using panel autoregressive distributed lag (ARDL) analysis on a sample of 32 countries, the results show that greater CBT significantly reduces EMP. The findings remain robust after controlling for U.S. monetary policy uncertainty, economic policy uncertainty, and financial development. However, no evidence is found that CBT becomes more effective during periods of heightened uncertainty. Further analysis indicates that exchange rate flexibility and financial integration strengthen the mitigating effect of CBT on EMP in emerging markets but not in developed markets.