NO : WP-2023-012
AUTHOR : Taniya Ghosh and Yadavindu Ajit
TITLE : Central Bank Transparency, the Role of Institutions and Inflation Persistence
With the transparency revolution across the world, this paper aims to investigate the effect of increased central bank transparency on inflation dynamics. We use the-oretical and empirical methods to show the importance of various institutional factors and their interdependence. Using a panel of advanced economies from 1998 to 2017, we investigate the role of central bank transparency in influencing inflation persistence in the presence of institutional factors such as central bank independence and labor market institutions, along with policy uncertainty. While previous research has examined the role of these institutional variables independently, this paper focuses on how these variables influence the efficacy of central bank transparency. We find that while central bank transparency reduces inflation persistence, its overall effect depends on the level of other variables. The role of central bank transparency in reducing inflation persistence can further be enhanced when we have an independent central bank, collective wage bargaining happening at the central level, relaxed labor laws, and lower policy uncertainty.
Keywords: Inflation Persistence; Central Bank Transparency; Central Bank In-dependence; Labor Market Institutions; Interdependence; Policy Uncertainty
JEL Code: D81; D82; E31; E52; E58; J51