The Mutual Relationship between Financial Inclusion and Effectiveness of Monetary Policy: Evidence from Upper-Middle-Income Countries

Hakan Yıldırım, Tuba Özkan, Anıl Lögün and Mesut Doğan

Journal of Research in Economics, Politics & Finance, 2025, vol. 10, issue 2, 619-635

Abstract: Enhancing financial inclusion is crucial for achieving global objectives such as sustainable growth, improved societal welfare, and poverty reduction. Due to its importance, financial inclusion has recently become a key policy issue and a widely studied topic. This study investigates the relationship between financial inclusion and monetary policy in upper-middle-income countries using the Two-Step System GMM and Panel Granger Causality methods. The findings reveal a bidirectional negative relationship between inflation and financial inclusion. Inflation negatively affects financial inclusion, while an increase in financial inclusion has a reducing effect on inflation. Additionally, digitalization, regulatory quality, and money supply positively affect financial inclusion, while the growth of money supply and deposit interest rates increase inflation. According to Granger causality analysis, there is a causality running from financial inclusion to the inflation rate. Accordingly, policymakers in upper-middle-income countries are advised to adopt balanced monetary policies and consider that increasing financial inclusion can help mitigate the adverse effects of inflation.

Keywords: Financial Inclusion; Monetary Policy; Dynamic Panel Data Analysis (search for similar items in EconPapers)
JEL-codes: C23 E52 F65 G18 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ahs:journl:v:10:y:2025:i:2:p:619-635

DOI: 10.30784/epfad.1642086

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