"When policy creates inflation uncertainty, prices become noisier signals. ... Investment projects that would create value under stable prices may be abandoned when inflation risk clouds the picture. ... But monetary instability is just the clearest example."
Once upon a time perhaps monetary instability was the clearest example, but surely nowadays, fiscal deficits, immigration restrictions and trade restrictions are more important.
And of course, the difficulty of being able to predict relative prices is just part of the problem. Probably MORE important are obstacles to relative price adjustments which is where inflation plays a positive role. It is important for the use of monetary instruments to have a clear idea of the optimum rate of inflation but of the loss function on both sides of of the optimum.
Unrelenting uncertainty produces a certain stability of its own: stasis and decay.
Stability remains underrated
Robert Higgs and Bruno Leoni would approve!
"When policy creates inflation uncertainty, prices become noisier signals. ... Investment projects that would create value under stable prices may be abandoned when inflation risk clouds the picture. ... But monetary instability is just the clearest example."
Once upon a time perhaps monetary instability was the clearest example, but surely nowadays, fiscal deficits, immigration restrictions and trade restrictions are more important.
And of course, the difficulty of being able to predict relative prices is just part of the problem. Probably MORE important are obstacles to relative price adjustments which is where inflation plays a positive role. It is important for the use of monetary instruments to have a clear idea of the optimum rate of inflation but of the loss function on both sides of of the optimum.