The High Costs of Monetary Instability

This chapter considers the implications of the research for the economies in transition. There is overwhelming empirical evidence that increases in rates of inflation will, on average, lower the rate of economic growth and the level of per capita real income over the long term. The costs of inflation are more than just economic in nature. Severe inequities can be generated through capricious income redistribution caused by unanticipated changes in the rate of inflation. The costs of inflation are more than just economic in nature. Severe inequities can be generated through capricious income redistribution caused by unanticipated changes in the rate of inflation. There is good reason to believe that our estimating procedures underestimate the costs of inflation in a developing country sample that evinces a far greater range of inflation rates than our industrial country sample.