Inflation dynamics and monetary responses in emerging economies

Abstract

This study investigates inflation dynamics and monetary policy responses in 20 emerging economies from 2000 to 2022, focusing on two core questions: the key drivers of inflation and the effectiveness of inflation-targeting frameworks. Using panel regression, difference-in-differences estimation, and interaction models, the analysis reveals that inflation is primarily driven by interest rate movements, exchange rate volatility, and external oil price shocks. Countries adopting inflation targeting experienced significantly lower inflation rates than non-targeting peers, particularly when institutional quality was strong. The findings underscore the importance of coordinated policy frameworks and credible institutions in stabilizing inflation. This research contributes to empirical understanding of how emerging markets can better manage inflation through evidence-based monetary reforms. By linking inflation control to institutional capacity, the study offers actionable insights for policymakers seeking resilient and adaptive frameworks in the face of external and structural challenges.