The Economics of Inflation and Monetary Policy: Annotated Bibliography

Korobilis, D. (2025). Exploring Monetary Policy Shocks with Large-Scale Bayesian VARs. arXiv. https://arxiv.org/pdf/2505.06649

Korobilis presents a high-dimensional Bayesian Vector Autoregression (BVAR) framework to estimate how conventional monetary policy shocks affect economic variables, focusing especially on inflation and its transmission in periods of high inflation (2022-2024). He uses methods combining high-frequency surprises with sign restrictions. The findings show that the effectiveness of monetary policy (especially via interest rate changes) on disaggregated consumer prices varied significantly over the recent inflation surge. The paper also emphasizes that the dynamics of transmission changed in that high inflation period. The methodology is rigorous: BVARs with latent factors allow handling many variables and capturing complex dynamics. The use of high-frequency surprises helps identify shocks more cleanly. However, being a pre-print (arXiv) may mean less peer review (depending on eventual publication), and the specific U.S. focus may limit generalizability to countries with different institutional settings. Also, model assumptions (e.g. sign restrictions, priors) can affect results. This is useful for understanding how inflation dynamics changed recently and how the transmission of monetary policy is not static. For a study of inflation and policy, this informs how policy may have had weaker or stronger effects in different sub-periods. It suggests one needs to account for time-variation in policy impact, especially in crisis or high inflation periods.

Knicker, M. S., Naumann-Woleske, K., Bouchaud, J.-P., & Zamponi, F. (2023). Post-COVID Inflation & the Monetary Policy Dilemma: An Agent-Based Scenario Analysis. arXiv. https://arxiv.org/pdf/2306.01284

This article uses an agent-based model (“Mark-0”) calibrated to shocks from the COVID-19 pandemic (lockdowns, supply chain, energy price shocks) and studies how monetary policy responses (particularly interest rate hikes) interact with expectations and anchoring. Key findings include: (i) without effective fiscal policy, economies exposed to such shocks suffer long recoveries or risk recession; (ii) that anchoring of inflation expectations is crucial for monetary policy effectiveness; (iii) tight monetary policy has trade-offs, especially in terms of unemployment and consumption; (iv) wage and price indexation parameters matter a lot. This offers a valuable non-standard modelling approach compared to standard macro DSGE or VAR models. The agent-based method captures heterogeneity and behavioral responses (expectations, anchors), which are often under-represented. Limitations: agent-based models involve many assumptions about behavior, calibration; results often sensitive to parameter choices. Also, being a scenario analysis, conclusions may be less precise in forecasting. Very relevant for analyzing the inflation & monetary policy topic, because it highlights that expectations and institutional credibility matter. In a bibliography seeking to understand not only what has happened but why, this source helps explain why policy sometimes underperforms or leads to trade-offs. Especially helpful if exploring inflation in developing countries or transitional economies.

Lorenzoni, G., & Werning, I. (2023). Wage-price spirals. Brookings Papers on Economic Activity, Fall 2023. https://www.brookings.edu/articles/wage-price-spirals/

Lorenzoni & Werning analyze the phenomenon of wage-price spirals in the post-pandemic era, particularly supply constraints that led to inflation surges, and how wages responded more slowly. Their model shows that once inflation begins falling, wages can grow somewhat faster temporarily without necessarily triggering further spirals. The paper distinguishes between demand shocks, supply constraints, and how wage adjustments feed back into price inflation. Very strong in combining theory and empirical insight. The setting (post-COVID) is highly relevant; the authors use recent data and build models that help isolate different types of shocks. On the downside, the paper’s inference could be less applicable in economies with weaker labor market institutions or less bargaining power for workers. Also, supply constraints differ sharply across sectors and economies, so generalizability is a concern. This is central for the topic because the wage-price spiral is often cited in policy debates: whether wage growth must be suppressed to control inflation or whether supporting wages is compatible with disinflation. This source helps frame that debate more precisely. If writing about inflation and monetary policy, this will be helpful in arguing about the role of labor markets, institutions, and the lag between price and wage adjustments.

Mlangeni, T., & Buthelezi, E. M. (2023). Monetary policy and inflation expectations: impact and causal analysis of heterogeneous economic agents’ expectations in South Africa. Journal of Applied Economics, 27(1), 2024. https://www.tandfonline.com/doi/full/10.1080/15140326.2023.2289724

This study examines how different groups (households, firms) form inflation expectations in South Africa, how those expectations respond to monetary policy actions, and how heterogeneous responses can affect inflation dynamics. The authors use causal analysis to identify differences in expectations, how anchored they are, and how policy credibility and communication matter. They find that households are less responsive (slower to adjust expectations) than firms; credibility of central bank plays a big role. The paper uses solid empirical methods and is regionally specific, giving insight into developing country contexts. South Africa is particularly relevant because it has relatively well-developed financial markets but also strong inflation pressures and inequality. Limitations: data on expectations may suffer from measurement error; results may not carry over to countries with very different institutional or political environments. Also, inflation history shapes expectations, so historical baggage matters. Highly useful if considering how policy efficacy depends on expectations, especially in emerging markets. This shows that general policy prescriptions must be tempered with how expectations are formed, heterogeneity, and central bank credibility. Good source for comparative work or when discussing inflation targeting efficacy.

Kosztowniak, A. (2023). Impact of Inflation, Markups and Wages on Changes in the Profitability of Enterprises in Poland. Journal of Finance and Financial Law, 4(40), 201–224. https://czasopisma.uni.lodz.pl/fipf/article/download/19472/21223

This paper explores how inflation, wages, and markups jointly influence the profitability of firms in Poland. It uses firm-level data to observe how rising input costs (via wages) and pricing behavior (markups) interplay under inflationary pressures. The author finds that inflation erodes profitability unless firms have sufficient markup power, and that wage increases can squeeze margin more drastically if markup adjustment is limited. Also, some industries fare worse depending on how much cost-push versus demand pull they experience. Strengths: firm-level data provide good granularity; focusing on markups is valuable because many inflation studies focus just on aggregate price and wage levels. The Poland case is informative for EU/Eastern Europe experiences. Limitations: results might be specific to Poland’s industrial structure, labor laws, competitive pressures. Also, inflation in Poland during the period may be influenced by EU policies, supply chain issues, energy shocks etc., which complicate isolating pure monetary policy effects. This source helps me understand the micro-foundations: how firms respond, whether they pass costs onto consumers or prop up margins. Useful if my annotated bibliography includes discussion of profit margins, markups, and cross-industry variation. It also suggests that monetary policy’s effect on inflation must consider how businesses set prices and markups.

Buthelezi, E. M. (2023). Impact of Inflation in Different States of Unemployment: Evidence with the Phillips Curve in South Africa from 2008 to 2022. Economies, 11(1), 29. https://www.mdpi.com/2227-7099/11/1/29

This paper revisits the Phillips Curve in the South African context over 2008-2022, examining how the relationship between inflation and unemployment changes in different “states” of unemployment (i.e. when unemployment is high vs low). It finds that when unemployment is low, inflation reacts more strongly to unemployment (i.e. tighter labor markets push inflation up), but when unemployment is high, that relationship weakens. The paper suggests non-linearities in the inflation-unemployment trade-off, and that monetary policy needs to account for this state dependency. Valuable for its empirical focus in an emerging market, long sample period, and explicit modeling of non-linearities. Also, the period includes episodes of both low and high inflation. Limitations: the results are specific to South Africa, which has particular labor market rigidities, structural unemployment, and inflation history. Also, other factors (exchange rates, external shocks) influence inflation and may not be fully modeled. Useful in showing that policy effectiveness (e.g. interest rate hikes) can vary depending on labor market slack. This feeds into a nuanced argument: one size (one rate policy) may not work uniformly across different phases of unemployment. Helps inform how inflation targeting or monetary tightening might need to be state-sensitive.

Hole, J. (2024). The effectiveness and transmission of monetary policy in the euro area.” European Central Bank. (2024, August). https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp240824~c215968c41.bg.html

This is an ECB interim assessment (August 2024) of how monetary policy has been working in response to the inflation surge in 2021-2022. The ECB argues that its policy stance has successfully transmitted through the financial system, dampened demand, and anchored inflation expectations. The assessment emphasizes challenges: sectoral balance sheets, global energy shocks (especially from the Ukraine war), and interaction between policies across countries. It also discusses how restrictive monetary policy has real costs and how calibration of policy is key. As an institutional source, it has high credibility and is directly relevant for policy debates. It draws on a broad array of data and with access to internal models. However, as an official assessment, it may present policy in a favorable light or underplay failures. Also, its focus on the euro area limits the applicability to other regions. The time lag of data and policy transmission means some conclusions might be backward-looking. This is essential for understanding how central banks view their own performance and constraints, especially in a major monetary union. If writing about inflation and how monetary policy works in advanced economies, this will provide a strong institutional perspective and can serve as a comparison point for other regions.

Jordà, Ò., & Nechio, F. (2023). Inflation and wage growth since the pandemic. European Economic Review, 156, 104474. https://www.sciencedirect.com/science/article/pii/S0014292123001034

This article studies how inflation and wage growth have evolved post-COVID across countries, especially with differences in government support during the pandemic. The authors use a dynamic difference-in-differences methodology to estimate how pandemic relief policies (support programs) influenced inflation and the pass-through of inflation into wages. Key findings include that in countries with larger supports inflation rose more, and wage adjustments lagged inflation, with varying degrees of passthrough depending on the institutional context. Strong in comparative cross-country empirical evidence; the method used helps isolate causal impacts of support policies. The lag in wage adjustments is important. Limitations: cross-country heterogeneity is large (different labor laws, bargaining systems, social safety nets), so aggregating may mask local differences. Also, some data on wage growth and supports may have measurement or reporting lags. Very helpful for seeing how monetary policy (and government intervention) has interacted with inflation and wages. For the annotated bibliography, this helps in showing how inflation affects households via wages, and how policy support influences inflationary pressures. It will be useful especially when comparing the inflation experience across different institutional settings.

Sintos, A. (2023). Does inflation worsen income inequality? A meta-analysis. Economic Systems, 47(4), 101146. https://www.sciencedirect.com/science/article/abs/pii/S0939362523000857

This paper meta-analyzes over 1,700 estimates from 124 published studies that examine the relationship between inflation and income inequality. The authors find a small to moderate effect: inflation tends to increase income inequality. They also detect mild publication bias (studies showing positive relationships are slightly overrepresented) and explore how the size of the effect depends on country type, inflation rate, and economic development. The meta-analysis brings together a large number of studies, which is excellent for external validity and understanding general patterns. It helps quantify how inflation has broader social effects beyond price stability. That said, the studies included vary in quality, definitions of inequality differ, and causality is often hard to pin down (i.e. whether inequality can also affect inflation). Also, effects may differ strongly in recent high inflation episodes which might not be fully captured. Useful for showing that inflation is not just macroeconomic or abstract, but has distributional consequences. If I include sections on socioeconomic impacts (welfare, inequality), this will support arguments about the cost of inflation and why monetary policy's targets matter. Also could be a basis for comparing costs vs benefits of policy responses.

Camara, I., Ouedraogo, R., Sy, A., & Sy, M. A. N. (2023). Unbearable costs: When is inflation impeding job creation? Evidence from Sub-Saharan Africa. International Monetary Fund. https://www.elibrary.imf.org/downloadpdf/view/journals/001/2023/046/article-A001-en.pdf

This paper uses firm-level survey data to investigate how inflation in Sub-Saharan Africa (SSA) affects private sector job creation. It finds a non-linear relationship: when inflation exceeds about 14%, the negative effect on job creation becomes particularly pronounced. The type of inflation (fuel vs food) also matters: inflation in fuel prices has more adverse effects than food inflation. Additionally, countries with better structural reforms have less negative impact. Strong in its empirical basis with real data from SSA, a region often under-studied in advanced country literature. The non-linear threshold finding is particularly policy relevant. However, the firm surveys might have sampling biases; further, controlling for confounding variables (exchange rates, external shocks) is always difficult. Also, 14% is a high threshold—many countries may be under that, so the findings are most relevant in high inflation regimes. Very relevant if the bibliography includes developing regions. This helps show the real economic costs of inflation in terms of labor market outcomes, beyond just price paths. For discussing monetary policy, it indicates that preventing inflation from rising beyond certain thresholds is critical for employment outcomes. Also suggests that in SSA, structural reforms amplify what monetary policy can achieve.