The Role of Central Banks in Managing Inflation and Financial Crises: Strategies, Challenges, and Global Case Perspectives

Abstract

The central banking system is vital in controlling inflation and managing financial crises within any economy. This research uses a mixed-method approach to examine the measures, working experience, and international examples of the Central Bank Independence (CBI). The quantitative part process focuses on the historical variation in inflation rates, rates of interest, and other measures implemented by central banking institutions across various economies. Econometric modeling and time series analysis are used to determine the effects of monetary policies on inflation, GDP growth, and financial stability. The study also examines the effects of the Global Financial Crisis (GFC) and COVID-19 on various firms through qualitative case studies. By analyzing policy papers, committee proceedings, central banking reports, and expert interviews, the research offers valuable insights into innovative strategies, behavioural patterns, regulatory actions, and the potential downsides of monetary policy operations. Moreover, key monetary instruments; including interest rate cuts, Quantitative Easing (QE), and liquidity injections, are evaluated in terms of their effectiveness in mitigating recessions. The findings suggest that central banking institutions' proactive stance on inflation stabilization, combined with analytical measures can address challenges such as policy lags, market unpredictability, and geopolitical instability. From a methodological perspective, the research highlights the need for central banks (CBs) to base their decision-making on empirical evidence, with coordinated national and/or supranational monetary policies to address shocks and adapt to unpredictable changes. Thus, using empirical data and policy relevance, this study comprehensively analyzes central banking strategies and offers policy recommendations for development practitioners, economists, and financial institutions.