infonet-economy

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.