How central bank transparency and independence shape inflation in the Western Balkans

This study examines the relationship between central bank transparency, central bank independence, and inflation in six Western Balkan countries, Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia, over the period 2010Q1–2022Q4 using country-specific autoregressive distributed lag (ARDL) models. The baseline institutional framework is extended to include real GDP and euro-area inflation in order to control for domestic macroeconomic conditions and common external inflationary pressures. The results reveal marked cross-country heterogeneity. While institutional variables remain relevant in some cases, inflation dynamics across much of the region are primarily driven by external inflation and macroeconomic factors. In several countries, the apparent long-run effects of transparency and independence weaken once macroeconomic and external controls are introduced. These findings highlight the conditional nature of institutional effects on inflation and the central role of imported inflation in small open economies. From a policy perspective, the results indicate that institutional reforms must be complemented by broader macroeconomic and structural measures aimed at mitigating external price transmission. The study provides a nuanced understanding of inflation dynamics in the Western Balkans and offers evidence-based guidance for policymakers seeking integrated strategies for price stability. • Inflation in the Western Balkans reflects strong cross-country heterogeneity. • Euro-area inflation is the main long-run driver in most Western Balkan economies. • Institutional effects weaken after adding macroeconomic and external controls. • Kosovo and North Macedonia show short-run institutional relevance. • Serbia retains stronger domestic policy leverage over inflation dynamics.