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The Impact of Monetary and Financial Freedom on Monetary Policy Transparency in Low, Middle and High Income Countries

Omid Sattari (), Kazem Yavari (), Hassan Heydari () and Mansour Etesami ()
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Omid Sattari: Ph.D. Candidate in Economics, Tarbiat Modares University
Kazem Yavari: Associate Professor of Economics, Tarbiat Modares University
Hassan Heydari: Assistant Professor of Economics, Tarbiat Modares University
Mansour Etesami: Assistant Professor of Economics, Tarbiat Modares University

Quarterly Journal of Applied Theories of Economics, 2017, vol. 3, issue 4, 153-176

Abstract: Theoretically speaking, monetary policy transparency refers to the informational symmetry between the central bank and the private sector. High degree of transparency reduces uncertainty, improves the private-sector inference about central bank goals, and increases the effectiveness of monetary policy. This study analyzes the impact of financial and monetary freedom on monetary policy transparency. A set of 102 countries -categorized in low, middle and high income groups have been investigated for the period 1998-2010, since the monetary policy transparency data are not available from 2010 onwards. The panel cointegation test suggests that the long run relationship between variables exists. The empirical findings suggest that while GDP per capita and trade freedom have a positive effect on transparency, the impact of financial freedom on transparency varieties in different income groups. Furthermore the monetary freedom exerts significant positive effect merely on middle income countries. These results imply that the reaction of monetary policy transparency to financial and monetary freedom might be depended to different economic structures.

Keywords: Monetary policy transparency; Panel cointegration; Financial freedom; Monetary freedom (search for similar items in EconPapers)
JEL-codes: C23 E52 E59 (search for similar items in EconPapers)
Date: 2017
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