money, banking Which do you think would be more harmful to the economy an inflation rate that of the 7 percent that has a standards deviation close to zero?  

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Investors are not really as rational as everyone seems to think they are.  They react emotionally.  Also, we will never really know what the inflation rate will be or how stable it is. Investors will react to the information they seem to have or think they have, and what they think will happen.

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Yes, the problem isn't so much with the rate of inflation as with whether it is stable or not. Financial common sense necessitates that we are able to plan to face the uncertain future that lies before us. If we have fluctuating inflation rates, this can be much more damaging than actually having a quite high, but a stable, rate of interest.

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Pohnpei's comments (as usual) make great sense.  Certainty is indeed something much sought after by people who have to make decisions about money. Without some sense of certainty, such people can become paralyzed, leading the economy to stagnate.

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I think that you're asking whether high inflation per se is bad or whether inflation is worse if it fluctuates (has a high standard deviation).  If that's what you're asking, fluctuating inflation is much worse.  Businesses and investors want certainty.  If they know inflation will be 7%, they can plan for it.  But if they don't know what it will be, they can't.

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If I am understanding your question, you are asking what would be more harmful that an inflation rate of 7%. I can think of many things that would be worse than a 7% inflation rate. Recently there has been talk of stagflation, which seems to be the worst possible scenario. Stagflation takes place when there is inflation but wages from employment do not increase. When this happens everyone gets poorer.

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