Monetary policy of central banks has only two possible consequences: stagflation or price stability. The arguments for this radical hypothesis are presented in this post. Stagflation is defined as a disequilibrium process of generally rising prices (various measures) coupled with falling economic growth (real GDP). Stagflation is not recognized or studied in conventional equilibrium economics, but dismissed as temporary exogenous shock. We consider stagflation as a disequilibrium and endogenous process driven by policy.
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