Monetary Policy and Inflation Dynamics in Post-Pandemic Economies
Abstract
This paper examines the transmission mechanisms of unconventional monetary policy during the 2021–2024 inflationary cycle, drawing on panel data from 42 OECD economies to challenge the prevailing consensus on interest rate efficacy.
Introduction
The post-pandemic macroeconomic landscape presented central banks with a constellation of pressures unprecedented in modern history. Supply-chain disruptions, fiscal stimulus of extraordinary scale, and a synchronized global recovery combined to produce inflation rates not witnessed since the early 1980s...
Literature Review
The canonical New Keynesian framework posits that monetary policy operates primarily through aggregate demand management. However, the supply-side origin of post-pandemic inflation created conditions under which standard models produced systematically biased forecasts...
Methodology
We construct a panel dataset covering 42 OECD member states over the period 2019Q1–2024Q2. The primary dependent variable is headline CPI inflation, measured as year-on-year percentage change. Independent variables include the policy rate differential, M2 growth, and a novel supply-chain disruption index...
Empirical Findings
Our fixed-effects estimation reveals a statistically significant but economically modest relationship between policy rate increases and inflation reduction. A 100 basis point increase in the policy rate is associated with a 0.31 percentage point reduction in annual inflation over a 12-month horizon...
Conclusion
The evidence presented here suggests that the conventional interest rate channel was substantially attenuated during the 2021–2024 inflationary episode. Policymakers who relied exclusively on rate increases as the primary disinflation tool may have imposed greater output costs than necessary...