arbiter
JournalsAccount

How Do Central Banks Control Inflation? A Guide for the Perplexed

Laura Castillo-Martinez & Ricardo Reis

Journal of Economic Literature2026https://doi.org/10.1257/jel.20251429article
AJG 4ABDC A*
Weight
0.50

Abstract

Central banks have a primary goal of price stability. They pursue it using tools that include the interest they pay on reserves, the size and the composition of their balance sheet, and the dividends they distribute to the fiscal authority. We describe the economic theories that justify the central bank’s ability to control inflation and discuss their relative effectiveness in light of the historical record. We present alternative approaches as consistent with each other, as opposed to conflicting ideological camps. While interest-rate setting may often be superior, having both a monetarist pillar and fiscal support is essential, and at times pegging the exchange rate or monetizing the debt is inevitable. (JEL E31, E43, E52, E58, E62, F31, G21)

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1257/jel.20251429

Or copy a formatted citation

@article{laura2026,
  title        = {{How Do Central Banks Control Inflation? A Guide for the Perplexed}},
  author       = {Laura Castillo-Martinez & Ricardo Reis},
  journal      = {Journal of Economic Literature},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1257/jel.20251429},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

How Do Central Banks Control Inflation? A Guide for the Perplexed

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.