The contribution of monetary policy to disinflation
Key takeaways
- Much of the inflation increase in 2021 and 2022 was due to sectoral shocks on which monetary policy has close to no traction. What monetary policy can do, or fail to do, is to ensure that the effects of these shocks dissipate swiftly.
- We argue that, absent the somewhat delayed but vigorous increases in policy interest rates since 2022, inflation would have subsided more slowly in 2023.
- Central banks' most important contribution to inflation is to demonstrate commitment to achieving their targets and ensuring that low inflation remains the norm for price- and wage-setting decisions.
00:18:37
Podcast
20 Dec 2023
Monetary policy and disinflation
What role have central banks played in bringing down inflation? 2023 has seen central banks across the globe respond forcefully to the recent rise in inflation. But given that much of this increase was due to sectoral shocks, what can monetary policy do to counter it? Benoit Mojon explains the findings of a new BIS Bulletin on monetary policy and disinflation, co-authored with other BIS economists.
The views expressed in this publication are those of the authors and do not necessarily reflect the views of the BIS or its member central banks.
