Quarterly Journal of Austrian Economics
The Non-Price Effects of Monetary Inflation
ABSTRACT: The aim of this paper is to examine the non-price effects of monetary inflation. An increase in the money supply may lead to price inflation, but it may also affect the non-price parameters of goods and services, such as quality or the quantity enclosed in packaging. Based on our analysis, we claim that an expansionary monetary policy may cause a decline in quality (quantity) of produced goods and services if the rise in costs prompts the entrepreneurs not to increase nominal prices of their product but to decrease their product’s quality (quantity), increasing its effective price—price adjusted for quality (quantity). In this way, the increase in money supply may have, ceteris paribus, a negative impact on innovativeness of entrepreneurs who, instead of improving the quality of products they offer, may in fact take the opposite action in order to avoid evident nominal price increases of their products.
KEYWORDS: monetary inflation, non-price parameters of goods and services, non-price effects of monetary inflation, pricing strategy, product quality
JEL CLASSIFICATION: B53, D40, E31, E51, L11
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Cite This Article
Sieroń, Arkadiusz, "The Non-Price Effects of Monetary Inflation," Quarterly Journal of Austrian Economics 20, no. 2 (Summer 2017): 146–163