Refinancing as an element of control over inflation

Abstract

The article is devoted to the problem of understanding the role and application of refinancing of bank systems as an instrument of monetary policy that can influence the parameters of the money market and the real sector of economy. The author analyses the differences in the impact of refinancing instruments of the central banks to economic indicators of 7 countries, namely: The USA, New Zealand, Norway, South Africa, China, Australia and India. The countries with different levels of economic development and with different banking systems, as well as refinancing mechanisms were chosen for the study. The paper focuses on the impact of changes in the refinancing rate on inflation, as well as on the index of consumer prices. The aspect of management is also considered. Common methods, based on econometrics, can determine the dependence, which does not coincide with the notion of "governance" in its broad sense. Thus, the purpose of the work is an attempt to define the properties of a monetary policy instrument as a control element, whichwhen changed can predetermine a change in the controlled factor. This is an attempt to contribute to the discussion of the role of central banks refinancing in managing inflation. In order to obtain the results the new mathematical analysis tool was used that incorporates the aspects of methods that assess monetary policy's impact on macroeconomic indices, which are not recognized within standard econometric models. For this purpose, the authors used a function that determines the dependence of the coefficient from the correlation between the refinancing rate and the inflation rate based on the length of the period of time used for the temporary data used, the time of the beginning of this period and the time lag of inflation data in relation to these rates of refinancing. The authors suggest that the tool to influence inflation on has a deterministic quality (i.e., depending on the external factors it may lead to the opposite results) and has no stable time lag.