Monetary Tightening without Disinflation? Cross-Country Evidence on Heterogeneous Transmission

João Tovar Jalles (), John Beirne and Donghyun Park ()
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João Tovar Jalles: University of Lisbon-Lisbon School of Economics and Management (ISEG)
Donghyun Park: The South East Asian Central Banks (SEACEN) Research and Training Centre

Working Papers from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: This paper examines how institutional, fiscal, and external conditions shape monetary transmission in 40 economies over 1991–2022. Using forecast-based policy innovations and local projections, we estimate cumulative CPI price-level and real GDP responses. On average, monetary tightening produces a positive but imprecise price response and a modest, delayed output contraction. Heterogeneity is more pronounced for activity than for prices: GDP declines most clearly in flexible-regime emerging markets, whereas regime differences in price responses are generally weak. In joint moderator models, financial openness retains the clearest association with CPI responses, while emerging-market status and public debt matter most for GDP. Controlling for global risk through a shock–VIX interaction leaves these results essentially unchanged. No principal estimate yields a sufficiently precise price decline, precluding meaningful sacrifice ratios. The findings point to overlapping institutional and external influences rather than a single dominant transmission mechanism.

Keywords: Monetary policy transmission; inflation dynamics; exchange rate regimes; central bank independence; financial openness; external buffers; global financial cycle; local projections; cross-country heterogeneity (search for similar items in EconPapers)
JEL-codes: C23 E52 E58 F41 F42 (search for similar items in EconPapers)
Date: 2026-09, Revised 2026-09
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Persistent link: https://EconPapers.repec.org/RePEc:sea:wpaper:wp65

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