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What is The Effect of Inflation

Chapter 13
Handbook of Research on Strategic Developments and Regulatory Practice in Global Finance
Inflation affects an economy in various ways, both positive and negative. 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 goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring that central banks can adjust real interest rates (to mitigate recessions), and encouraging investment in non-monetary capital projects.
Published in Chapter:
An Assessment on Inflation Risk and Its Effects on Business Operations
Ümit Hacıoğlu (Istanbul Medipol University, Turkey), Hasan Dinçer (Istanbul Medipol University, Turkey), and Burcu Parlak (Beykent University, Turkey)
Copyright: © 2015 |Pages: 20
DOI: 10.4018/978-1-4666-7288-8.ch013
Abstract
The latest economic crisis in the world affected business operations and decision making process at management rank. One of the major components of financial system is business organizations within the financial environment, which injects cash to the system and individuals. Therefore, fluctuations in financial system regarding inflationary trends should be evaluated and risk management functions for banking operations should be facilitated. In this chapter, operating mechanism of financial system, risks, inflation and the effects of inflation on business operations have been outlined from a theoretical perspective.
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