The Impact of Monetary Policy on Inflation Rate in the Republic of Yemen

Abstract

Due to price fluctuations, the decline in the real value of the local currency, the imbalance between aggregate demand and aggregate supply of goods and services, and increasing inflationary pressures, there is an urgent need to rely primarily on fiscal and monetary policies to manage the macroeconomy in a way that ensures economic stability. Therefore, this research aims to analyze the impact of monetary policy on the inflation rate in the Republic of Yemen. To achieve the research objective, a descriptive analytical approach was used to analyze the data covering the research period through two sections. The first section discusses monetary policy and inflation and its causes, while the second section analyzes the development of monetary policy and its impact on inflation indicators in the Republic of Yemen for the period (2000-2020). The research concluded with the following key findings and recommendations:

-     There is a significant impact of monetary policy on the exacerbation of inflation indicators, with the average annual consumer price index reaching approximately (223.24%). The average inflation rate was about (13%), while the monetary stability coefficient averaged (15%) during the research period (2000-2020). Additionally, the average excess money supply was (2060.7) billion riyals, averaging (137.1%) of the real GDP during the same period.