The Portfolio Theory of Inflation and Money (In)Effectiveness

Biagio Bossone

Chapter Chapter 13 in Trailblazing Visions of Money in Economic Theory, 2025, pp 319-356 from Springer

Abstract: Abstract This chapter investigates the pivotal role that Global Investors play in the valuation of currency and various financial instruments within economically integrated markets, emphasizing their international trading dynamics. Grounded in the innovative Portfolio Theory of Inflation (PTI), it delves into the complex interplay between capital allocation decisions made by these investors and the domestic monetary and fiscal policies employed by countries. By focusing on how Global Investors respond to country-specific attributes, particularly credibility, the chapter outlines the limited policy space available for national authorities. It highlights the circumstance that countries with perceived low credibility face significant constraints on implementing active macroeconomic policies, leading to adverse outcomes such as currency depreciation and heightened inflation rather than desired economic growth. This analysis ultimately reveals that the effectiveness of fiscal and monetary policies is inherently tied to the perceptions of Global Investors, thus reshaping our understanding of economic sovereignty and the intricate mechanisms of macroeconomic policy effectiveness in a globalized landscape.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-031-82544-6_13

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DOI: 10.1007/978-3-031-82544-6_13

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