Price stability and a positive rate of inflation should not be the aims of a monetary authority, as such policies tend to create severe financial instability. Prices should fluctuate to reflect the productivity of individual industries and the economy as a whole, and the efficient (or inefficient) allocation of resources.
Economics
What is Money?
People are in constant search to satisfy their needs. However, it is very difficult nowadays for us to be able to satisfy our needs alone. It is impossible for a single person to produce everything he needs to have a minimally modern life: it is not possible to obtain time, much less, all the knowledge necessary to learn how to produce everything (HAYEK, 1945). It is natural for each person to be better at some tasks than others, so people specialise in different tasks (MISES, 2008).
‘Inflation’ is still transitory
I was wrong about both the persistence and magnitude of the price increases of goods and services. What did escape my reasoning, you ask? In short, I never thought banks and other credit institutions would be so stupid and
reckless.
Time Preference
In the 19th century the Austrian Economist, Bohm Bawerk, introduced what we now know as time preference. In Bawerk’s words:
“Present goods are always of more value than future goods of the same kind and quantity.”
The Austrian Theory of Constraints
“It would be so nice if something made sense for a change.” – Alice
Lewis Carroll, Alice’s Adventures In Wonderland
The ECB is raising rates, but it is also committed to buying more government bonds
Like the Fed, the ECB is just pretending to fight the high CPI. The fact that the ECB’s balance sheet has stopped increasing and that eurozone’s M2 is increasing at a slower pace than in 2020 and 2021 are factors that reduce the pressure on price increases, but this only means that, best case scenario, the ECB will be able to bring the CPI to lower levels. It is less likely that prices will return to pre-2021 levels. This would require a price deflation.
The real meaning of inflation
A distinctive feature of the economists of the so-called “Austrian School of Economics” is that they advocate a theory of money considerably different from that of their colleagues in other schools of economic thought.
The differences between the aforementioned approaches already begin in the very definition of the word inflation and this will be the main topic of this article.
Monetary Policy and Environmental Progress
Why Bad Money Drives Up Pollution
What the Monetary Authorities Should Do
Why Low Rates and High Taxes Won’t Help Against Inflation
Croatia May Become the 20th Member of the Eurozone in 2023: What Does this Mean to the Euro?
In addition to Croatia, there are six countries that have not yet joined the euro but should do so once the requirements are met: Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Sweden.
The ECB concludes that only Croatia and Sweden meet the price stability criteria.