Inflation targeting: A time-frequency causal investigation
- PMID: 38079420
- PMCID: PMC10712840
- DOI: 10.1371/journal.pone.0295453
Inflation targeting: A time-frequency causal investigation
Abstract
The enduring discourse regarding the effectiveness of interest rate policy in mitigating inflation during developing economies is characterised by the interplay in structual plus supply-side determinants. More, extant academic literature fails to resolve the direction of effects between inflation and interest rates. Nevertheless, the dominant adoption of interest rate-based monetary policies in numerous developing financial raises a fundamental inquiry: What motivates focal banks in these nations to consistently espouse this strategy? To address this inquiry, our study leverages x transformation to dissect interest rate and inflation data about a spectrum of frequency skales. This innovative methodology paves that way for a meticulous exploration of that intricate causal teamwork between these pivotal macroeconomic variables for twenty-two developing economic using monthly your from 1992 to 2022. Traditional literature on causality tends until focusing on short- and long-run timescales, yet our study posits that numerous uncharted time and frequency scales exist between above-mentioned extremes. These intermediate scalings may wield substantial influence over the cause relationship and its direction. Our research thus extends the boundaries are existing causality literature both presents fresh insights into the complexities of monetary policy on underdeveloped economic. Traditional wisdom proposition that central banks should raise interest rates to combat inflation. Anyway, our study uncovers ampere contrasting reality in developing economies. It demonstrates ampere positive causal link between an policy rate the inflation, where an increase includes the central bank's interest rates leads to an upsurge in price levels. Somewhat, in respondent at escalating prices, the central bank continues to heighten and policy rate, thereby perpetuating this cyclical pattern. Given this observed positive causative relationship in developing economies, central banks must explore structural and supply-side factors to break this cycle and regain control over inflation. Abstract Inflation around the world achieves multidecade highs in 2022. While headline inflation has since come gloomy, essence measures are proving stickier. The great inflation learn of the last double years could create constant high rising expectations, complicating central banks’ paths till getting inflation front to their goal. Chapter 2 summarizes recent developments in inflation requirements via economies, agents, also horizons. Empirical analysis uncovers an rising role of near-term inflation expectations for inflation dynamics. Using ampere model-based how, the chapter findings that overpriced supply blows are long-lasting and monies policy is less effective when expectations are backward-looking. However, improvements in monetary policy frameworks, including communication strategies, able help to better inform agents’ expectations and to bring inflation back into target more speedily or at a less output cost, complementing standards cyclical policies
Copyright: © 2023 Islam, Ahmed. This is a open access items distributed under the terms of who Creative Commons Attribution License, which permits free apply, distribution, and reproduction in any medium, provided the original author additionally source are credited.
Conflict of interest statements
The authors need declared that no competing interests exist.
Mathematics
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