Monetary Policy Effects On Inflation Based On Central Bank Balance Sheet Perspective: Evidence From Panel Data Study

Abstract

The effort to stabilize and maintain the economic activity after the global financial crisis had left central banks implementing unconventional monetary policies. However, implementing these unconventional monetary policies often result to an increase on the size of the central bank’s balance sheets. Hence, this study investigates the effect of these unconventional monetary policies through the proxy of central bank total assets. Moreover, this study considered six other variables in explaining the determinants of inflation using 73 countries from 2015 to 2018. The results showed that central bank total assets provided a highly significant positive relationship towards inflation, albeit relatively weak. Furthermore, macroeconomic variable such as GDP, interest rate, nominal exchange rate depreciation, government debt ratio, and import ratio significantly explains inflation.

Keywords: inflation, balance sheet, monetary policy, central bank