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Inflation Monetary Policy

topic v1.0.0 2026-04-05 Agent-extracted

How central bank policies inflation targeting and monetary frameworks affect price stability output growth and financial conditions

Download .pax.tar.gz 2.5 KB

Domain: Inflation and Monetary Policy

How central bank policies inflation targeting and monetary frameworks affect price stability output growth and financial conditions

Period: 1970-present Population: Countries worldwide Level: macro

Overview

6
Constructs
4
Findings
3
Engines

Constructs

consumer_price_inflation_annual Consumer Price Inflation Annual

Annual percentage change in consumer price index measuring the average price change of a basket of goods and services

central_bank_policy_rate Central Bank Policy Rate

Benchmark interest rate set by central bank for interbank lending or monetary policy operations

broad_money_growth_m2 Broad Money Growth M2

Annual percentage change in M2 money supply including currency demand deposits savings deposits and money market funds

exchange_rate_volatility_neer Exchange Rate Volatility NEER

Standard deviation of monthly nominal effective exchange rate changes over a rolling 12-month window

real_interest_rate_lending Real Interest Rate Lending

Nominal lending interest rate adjusted for inflation using the GDP deflator measuring true cost of borrowing

inflation_expectations_12m Inflation Expectations 12 Month

Median expected inflation rate over next 12 months from consumer surveys or professional forecaster surveys

Findings

Inflation targeting regimes reduce inflation volatility by approximately 1 to 2 percentage points compared to non-targeting regimes

Direction: negative Confidence: moderate Method: difference-in-differences with matching

Money supply growth is positively associated with inflation in the long run consistent with the quantity theory of money

Direction: positive Confidence: strong Method: long-run panel cointegration

Central bank independence is negatively associated with average inflation rates across countries controlling for fiscal and structural factors

Direction: negative Confidence: strong Method: cross-country regression

Exchange rate volatility is negatively associated with trade and investment flows particularly in emerging market economies

Direction: negative Confidence: moderate Method: gravity model estimation

Engines

ols_regression var_model cointegration_analysis

Sources

Taylor, John (1993). Discretion versus policy rules in practice DOI
Romer, Christina, Romer, David (2004). A new measure of monetary shocks derivation and implications DOI
Ball, Laurence, Sheridan, Niamh (2005). Does inflation targeting matter
Friedman, Milton, Schwartz, Anna (1963). A monetary history of the United States 1867 to 1960

Tags

topicmonetary-policy

Details

Domain: Inflation and Monetary Policy

How central bank policies inflation targeting and monetary frameworks affect price stability output growth and financial conditions

Temporal scope: 1970-present | Population: Countries worldwide

Key Findings

  • Inflation targeting regimes reduce inflation volatility by approximately 1 to 2 percentage points compared to non-targeting regimes (negative, moderate)
  • Money supply growth is positively associated with inflation in the long run consistent with the quantity theory of money (positive, strong)
  • Central bank independence is negatively associated with average inflation rates across countries controlling for fiscal and structural factors (negative, strong)
  • Exchange rate volatility is negatively associated with trade and investment flows particularly in emerging market economies (negative, moderate)

Installation

Install this PAX into your Praxis instance:

praxis_import_pax("inflation-monetary-policy.pax.tar.gz", install=True)