This infographic aims to explain the link between monetary policy and inflation. According to the quantity theory of money, inflation is caused by an excessive amount of money in relation to the goods and services produced. The Central Bank, which is independent of political power, aims to limit inflation by controlling the money supply. To do this, it has several tools at its disposal: changing key interest rates, conducting open-market operations (buying and selling securities on the bond market), or changing the level of reserve requirements. After the 2007-2008 crisis, some central banks also implemented unconventional monetary policies (quantitative easing, or a policy of massive asset repurchases by the central bank from financial players) in a context of near-zero interest rates.
Infographic: Anastasia Melachrinos
