what is price stability?

Answer 1

(m)

A situation in which the average level of prices is neither moving up nor down. Because of measurement error, price stability deemed consistent with a small (in the range 2-3 per cent) rise in the consumer price index

Answer 2

It's relative, in terms of reliability of price over time. Obviously, prices don't stay the same forever, the question is how much variability is desired, good and tolerable without causing additional destabilization.

Because it is subjective, it falls within the realm of behavioral economics, where one must take into account the experience of the market participants. People used to hyperinflation may be jumpy if an otherwise consistent pricing is disrupted, or rather may adjust warmly to a variable price regime that would dismay those used to a steady pricing regime.

Answer 3

Benefits of price stability
The objective of price stability refers to the general level of prices in the economy. It implies avoiding both prolonged inflation and deflation. Price stability contributes to achieving high levels of economic activity and employment by


improving the transparency of the price mechanism. Under price stability people can recognise changes in relative prices (i.e. prices between different goods), without being confused by changes in the overall price level. This allows them to make well-informed consumption and investment decisions and to allocate resources more efficiently;
reducing inflation risk premia in interest rates (i.e. compensation creditors ask for the risks associated with holding nominal assets). This reduces real interest rates and increases incentives to invest;
avoiding unproductive activities to hedge against the negative impact of inflation or deflation;
reducing distortions of inflation or deflation, which can exacerbate the distortionary impact on economic behaviour of tax and social security systems.
preventing an arbitrary redistribution of wealth and income as a result of unexpected inflation or deflation.

While the Treaty clearly establishes the maintenance of price stability as the primary objective of the ECB, it does not give a precise definition of what is meant by price stability.


Quantitative definition of price stability
The ECB’s Governing Council has defined price stability as "a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%. Price stability is to be maintained over the medium term".

The Governing Council has also clarified that, in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term.

Answer 4

It's usually a fairy tale.

Answer 5

it's when prices are stable.

Answer 6

any thing