The Mutual Relationship between Financial Inclusion and Effectiveness of Monetary Policy: Evidence from Upper-Middle-Income Countries

İngilizce (OpenAlex)

Enhancing financial inclusion is considered a crucial factor in achieving global objectives such as ensuring sustainable growth, improving societal welfare, and reducing poverty. Due to its significance, financial inclusion has recently emerged as a key global policy issue and a frequently studied topic in the literature. This study examines the mutual relationship between financial inclusion and monetary policy in upper-middle-income countries using the Two-Step System GMM and Panel Granger Causality methods. The findings derived from the analyses indicate an inverse relationship between inflation and financial inclusion. In other words, while inflation negatively affects financial inclusion, an increase in financial inclusion also exerts a negative impact on inflation. Regarding other variables, digitalization, regulatory quality, and money supply have a positive effect on financial inclusion. On the other hand, the growth of money supply and deposit interest rates positively influence the inflation rate. Furthermore, the results of the Granger causality analysis reveal a causal relationship from financial inclusion to inflation. In light of the findings, policymakers in upper-middle-income countries are advised to adopt a balanced monetary policy that enhances financial inclusion while keeping inflation under control, consider that excessively expansionary policies may intensify inflationary pressures and weaken financial inclusion, and take into account that increasing financial inclusion can help mitigate the adverse effects of inflation when formulating regulations.