Business and Economics

Price Level Dynamics Differentiation as a Problem of Definition of Price Stability in the Euro Area
Paweł Błaszczyk

The price stability is the widespread goal of monetary policy. But it doesn’t mean that it is definitely good for society and economy. In the fact there are also negative consequences, especially for the monetary union like EMU. Their importance depends on correctness of definition of price stability for the practical purposes. The main aim of this article is presentation of the definition of ECB definition of price stability and their threats for member’s countries. First of all four phenomenons are pointed out: threats of deflation, downward rigidities of nominal wages, and zero bound of nominal interest rates and inflational/deflational differentials in the euro area. To realize this aim, procedure of definition of price stability is proposed in the first part of article. It allows understanding essence of price stability in the transparent way. In the second part potential threats of price stability are indicated. In the third and last part definition and their threats of euro area price stability are presented. Especially the importance of inflation differentials is emphasized.

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