Globalization and Inflation: The Limits of Central Bank Control

This article challenges the popular notion that globalization processes permanently limit the effectiveness of domestic monetary policy. Drawing on the work of Michael Woodford and advanced econometric modeling (FAVAR, DSGE), the author demonstrates that central banks still possess the tools to achieve inflation targeting. The text provides a detailed analysis of the mechanisms of transmission of external shocks, the role of inflation expectations, and the specific challenges facing emerging economies such as India. The study compares various models of capitalism—from technological to dictatorship—emphasizing the crucial importance of institutional credibility in maintaining price stability. This is a comprehensive look at the evolution of monetary policy in the face of global liquidity and the changing dynamics of world markets out to 2025.