The meaning of monetary stability

Amos Pesenti

No 475, FSES Working Papers from Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland

Abstract: The conventional approach to monetary stability is not so much different from that related to price stability. As such, it simply supposes that the aggregation of prices in the marketplace is necessary and sufficient for determining the presence of inflation (or deflation) in the economy. However, investigating monetary stability according to this microeconomic approach leads to confusion since the aggregation of price data, as suggested in this paper, does not explain the source of inflationary (or deflationary) pressure on overall prices. Consequently, price instability does not necessarily imply the existence of monetary instability, and vice versa. Hence, this paper, besides presenting a new macroeconomic approach to monetary stability, explains the true source of upward (or downward) pressure on overall prices and then provides policy recommendations to prevent monetary instability.

Keywords: banking; consumer price index; deflation; inflation; monetary stability; money; payments; price stability (search for similar items in EconPapers)
JEL-codes: E10 E20 E31 E42 E51 E52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2016-10-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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