Benefits and Threats of a Fully Inflation-Indexed Economy

Abstract

A fully inflation-indexed economy stabilizes economic inter-temporal relationships and offers a set of potential benefits: hedging the economy against inflation; improving the performance of the financial system; helping to lessen the most common housing and economic recessions of developed economies; facilitating demand stimulus policies to overcome economic recessions and pursue full employment; and helping reduce international imbalances. The design, transition and management of an indexed economy present a set of threats and challenges enhanced by the fact there is a lack of experience. Despite the threats, the significant potential benefits should encourage debate and implementation.