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Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the [[opportunity cost]] of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of [[good (economics)|goods]] as consumers begin [[Hoarding (economics)|hoarding]] out of concern that prices will increase in the future. Positive effects include reducing [[unemployment]] due to [[nominal rigidity|nominal wage rigidity]],<ref>{{Harvnb|Mankiw|2002|pp=238–255}}</ref> allowing the central bank greater freedom in carrying out [[monetary policy]], encouraging loans and investment instead of money hoarding, and avoiding the inefficiencies associated with deflation.
Today, most economists favour a low and steady rate of inflation.<ref name="econjournalwatch.org">Hummel, Jeffrey Rogers. "Death and Taxes, Including Inflation: the Public versus Economists" (January 2007).[http://econjwatch.org/articles/death-and-taxes-including-inflation-the-public-versus-economists] p. 56</ref> Low (as opposed to zero or [[Deflation|negative]]) inflation reduces the severity of economic [[recessions]] by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a [[liquidity trap]] prevents [[monetary policy]] from stabilising the economy.<ref name="aeaweb.org">"[http://www.aeaweb.org/articles.php?doi=10.1257/089533003772034934 Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others]" Lars E.O. Svensson, ''Journal of Economic Perspectives'', Volume 17, Issue 4 Fall 2003, pp. 145–166</ref> The task of keeping the [https://stockmarket678.blogspot.com/ rate of inflation] low and stable is usually given to [[monetary authority|monetary authorities]]. Generally, these monetary authorities are the [[central bank]]s that control monetary policy through the setting of [[interest rate]]s, through [[open market operation]]s, and through the setting of banking [[reserve requirements]].<ref name=Taylor>{{Cite book |last = Taylor |first=Timothy |title=Principles of Economics |publisher=Freeload Press |date=2008 |isbn=978-1-930789-05-0}}</ref>
== Definition ==
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