<\/p>\n
News:\u00a0<\/span><\/b>Inflation has been on the rise in most part of the world. This has once again started the debate on the best way to restore price stability<\/span>.<\/span>\u00a0<\/span><\/p>\n Old\/orthodox method<\/span><\/b>-This involves the\u00a0<\/span>reduction in spending and raising of interest rates<\/span><\/b>. But this\u00a0method\u00a0often has\u00a0<\/span>side effects (such as bankruptcies and rising unemployment)\u00a0<\/span><\/b>and not always produced the desired\u00a0results\u00a0quickly enough.<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n The inflation-producing effects of high interest rates is called the \u2018<\/span>Cavallo\u00a0effect\u2019<\/span><\/b>.\u00a0This\u00a0idea suggests that\u00a0<\/span>inflation is associated with cost-push factors<\/span><\/b>, such as high interest rates, which boost the cost of working capital and thus make the production cost higher.<\/span>\u00a0<\/span><\/p>\n Although this theory has received some empirical support but as seen in Turkey\u2019s case\u00a0<\/span>despite lowering interest rates, market rates have continued to rise.<\/span><\/b>\u00a0It indicates that the inflation in Turkey is the result of more fundamental problems\u00a0in\u00a0economy.<\/span>\u00a0<\/span><\/p>\n Price controls or by clamping down on large firms with price-setting power<\/span><\/b>-These measures have sometimes worked for example in Israel in 1980s, Latin America.<\/span>\u00a0<\/span><\/p>\n Temporary wage-price controls<\/span><\/b>\u00a0can help coordinate price-setters to move to a low-inflation equilibrium.\u00a0It is useful when high inflation is driven predominantly by expectations rather than \u2018fundamentals\u2019.\u00a0<\/span>\u00a0<\/span><\/p>\n Why\u00a0single\u00a0strategy is\u00a0not\u00a0perfect?<\/span><\/b>\u00a0<\/span><\/p>\n Economics is\u00a0<\/span>not a science with fixed rules<\/span><\/b>. Different countries face varying conditions which call for different policies. \u00a0<\/span>\u00a0<\/span><\/p>\n Economics\u00a0<\/span>works contextually and not universally<\/span><\/b>.<\/span>\u00a0<\/span><\/p>\n Currently,\u00a0<\/span>Inflationary pressure is the result of transitory set of factors<\/span><\/b>, like the pandemic-related reallocation of spending from services to goods, and supply-chain and other disruptions to production<\/span>.<\/span>\u00a0<\/span><\/p>\n Transitory inflation\u00a0<\/span>calls for a restrained response<\/span><\/b>, whether through regulation or the central bank\u2019s exercise of monetary policy.<\/span>\u00a0This should\u00a0<\/span>not rely heavily on any one method.<\/span><\/b>\u00a0<\/span><\/p>\n Source-\u00a0<\/span><\/b>This post is based on the article<\/span>\u00a0\u201cInflation heresy mustn\u2019t always be rejected out of hand<\/span><\/b>\u201d\u00a0published in<\/span>\u00a0Live\u00a0mint\u00a0on<\/span><\/b>\u00a014th\u00a0Jan 2022<\/span>.\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" News:\u00a0Inflation has been on the rise in most part of the world. This has once again started the debate on the best way to restore price stability.\u00a0 What are various strategies to deal with Inflation?\u00a0 Old\/orthodox method-This involves the\u00a0reduction in spending and raising of interest rates. But this\u00a0method\u00a0often has\u00a0side effects (such as bankruptcies and rising… Continue reading Inflation heresy mustn\u2019t always be rejected out of hand<\/span><\/a><\/p>\n","protected":false},"author":10323,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10501],"class_list":["post-161891","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-live-mint","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":1700776757,"cached_date":1704710581},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/161891","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10323"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=161891"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/161891\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=161891"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=161891"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=161891"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What are various strategies to deal with Inflation?<\/span><\/b>\u00a0<\/span><\/h5>\n
Lowering the interest rates<\/span><\/b>\u00a0-This has been followed by\u00a0<\/span>Turkey<\/span><\/b>.\u00a0<\/span>\u00a0<\/span><\/h5>\n
What is the way forward?<\/span><\/b>\u00a0<\/span><\/h5>\n