Stability and Instability of an Economic System: Considerations

Abstract

The essay would like to investigate on the inflation as an equilibrium problem within an economic system hit by an outside or inside shock. The persistence of economic system instability makes the inflation speed to grow, gradually reaching the maturity condition. From this point forward, the nominal price movement becomes regular and this regularity will allow the economic system to have an almost-normal working condition. The inflation must be intended as a remedy spontaneously applied when a system is hit by a severe shock, then becoming unstable. According to this view, also the negative inflation or deflation should be regarded as a spontaneous remedy, usually appearing in the world of economy to face a financial crisis caused by a speculative bubble outbreak. In this case, deflation seems to be the mere consequence of a severe economic downturn, which activates a negative inflation. The negative inflation caused by the decline in the economic situation, does accumulate inside the system and therefore is creating a progressive settlement of structural inflation. The deflation is strictly related to the depressed economy (recession), just similar to the link created between typical inflation and economic cycle. When going out from the recession, the economic recovery leads to a deflation gradual mitigation. If the economic recovery is fuelled by strong amount of public resources, it could be demonstrated that the increasing amount of public debt is neutral on the deflation destiny.