Central Bank Transparency, the Role of Institutions and Inflation Persistence

In this paper, for a panel of advanced economies for the period between 1998 to 2017, we study the role of CBT in the presence of other institutional factors such as labor mar- ket institutions, CBI and policy uncertainty on inflation persistence.1 The reason behind this approach comes from the theory of the second-best, wherein the removal of one dis- tortion, say in this case, uncertainty due to. [...] Walsh (2007b) investigates the influence of economic transparency on the monetary transmission mechanism and highlights that the consequences of an inter- est rate adjustment on inflation are significantly dependent on the information disclosed by the central bank and the quality of that information. [...] Given the increasing importance of transparency and results depending not only on the level of transparency but also on the level of the other distortions in the economy, it becomes important to see the impact of CBT on inflation dynamics, particularly inflation persistence. [...] As per the right to manage wage bargaining model, the bargaining between firms and unions happens only over wages, and then the firm subsequently chooses the level of employment, so it allows the firm to choose the number of hours as per the demand for the product and to adapt according to the changes in product demand by changing the number of hours of labor required. [...] Empirical Methodology The main objective of this paper is to assess the behavior of inflation persistence with respect to the CBT in the presence of other institutional parameters of the economy; to this end, we will use the marginal effects approach, which enables us to assess the significance of CBT impact at different levels of institutional parameters.