Untangling the relationship between inflation control and economic/non-economic variables

Abstract

Purpose − This research extends the concept of price stability by studying inflation control through analyzing both economic and non-economic variables with particular emphasis on central banks characteristics. Furthermore, variations among inflation control and other variables such as the development stage of a country will be presented. Design/methodology/approach − Deductive in nature, this study required the collection of secondary data from several credible sources. For reasons discussed in the paper, the representative sample was narrowed down to eighty three countries. The analysis encompassed a series of diagnostic tools including descriptive statistics, correlations and a linear regression analysis. Findings − The findings affirm a connection between several economic determinants in addition to the size of the central bank in terms of its total assets. Other research questions were confirmed for example that there is a difference among countries of different development levels and the level at which they control inflation. Also, this study revealed that there is a significant relationship between inflation control and IMF lending. Research limitations/implications − This paper takes on the economic theory of inflation and adds non-economic factors as well as central bank characteristics to the model. Practical implications – From a practical standpoint, this research attempts to provide regulating bodies especially central banks with a non-economic perspective on the control of inflation. It is intended to draw attention on several factors such as the characteristics of the central bank and how they play a role in controlling inflation. Originality/value − The originality of this paper is that it studies both economic and non-economic factors that determine the control of inflation with special focus on central bank characteristics.