What should the inflation rate be? (On the importance of a long-standing discussion for defining today’s development strategy for Russia)

Abstract

This article sets out to demonstrate that every economy at a specific time has its inherent, quite definite, rate of inflation. Inflation rates may vary widely depending on economic situation and should be estimated in a dynamic perspective. They include a component associated with the degree of transformation of production facilities, which determines the "normal" rate of inflation. Another component, reflecting the influence of extra investment, which may prove necessary to compensate for the previous period of decapitalization of the Russian economy, varies through the investment cycle. This makes it possible to forecast inflation fluctuations around the "normal" rate; their recognition should be the basis for establishing a socially and politically acceptable rate of inflation within a particular development strategy.

Crisis of the euro zone and prospects of the euro

“…Moreover, in contrast to monetarists' arguments, inflation does not always have a negative effect on eco nomic growth 11 : in some cases, inflation is necessary for economic growth. This means that each type of economy has its own "structural" inflation deter mined by the socioeconomic structures in that country [47]. Thus, it is absolutely inadequate to set homoge neously low inflation as a goal for the eurozone's mon etary policy; however, precisely this task was set for the ECB.…”

Investment financing, inflation, risks, and stabilization

“…3 Simple concentration of efforts of particular fiscal agents is not sufficient for cardinal improvement of the quality of risk management; for these efforts to be truly effective the financial sector must be restructured.…”

Current features of Norway’s monetary policy

“…(7) the credibility of the actions of the monetary authorities; (8) developed financial and banking systems; (9) a reasonable institutional environment; (10) active formation of a market mechanism of ade quate assessment of inflation expectations of market agents and management of their level by the state. (The central bank primarily influences the inflation rate through market based instruments and at the same time establishes the smooth functioning of the commodity and currency markets.…”

“…The effect of inflation on cyclical convergence is exhibited to the extent where price growth deviate from the inflation benchmark set by the central bank, in turn influencing the decision making sphere of monetary policy. Accordingly, in a generalized form, inflationary expectations and the level of long term interest rates serve as indicators of the effectiveness of monetary and macroeconomic policy 10 . 10 Containment of inflationary expectations can reduce fluctua tions in interest rates, lower borrowing costs for citizens, and establish a stable and competitive cost of capital for Norwegian companies and sustainable growth in output and employment.…”

“…Accordingly, in a generalized form, inflationary expectations and the level of long term interest rates serve as indicators of the effectiveness of monetary and macroeconomic policy 10 . 10 Containment of inflationary expectations can reduce fluctua tions in interest rates, lower borrowing costs for citizens, and establish a stable and competitive cost of capital for Norwegian companies and sustainable growth in output and employment. For the economic decision making process, real interest rates are most important (nominal rate minus the inflation rate for a relevant time period).…”