After World War II, democracies witnessed transformations that were and are much more lenient vis-à-vis the rise in inflation. The main institutional changes that have occurred gradually ever since and can combine nowadays to fuel inflation refer to (i) the shift in ideas referring to equality and redistribution, (ii) the labor market policies, (iii) bringing man’s natural environment to the level of importance of the social environment, with a particular focus on climate, and (iv) preserving a large capacity of the government to produce inflation in a context in which political power has granted independence to the central bank in terms of monetary policy. We show how features of society listed under items (i)-(iv) had combined to lead to low and stable inflation during 1982-2008, to lower than desired inflation during 2009-2020, and to the high inflation starting with 2021. The inflation-taming efforts succeeded only when three elements acted jointly: (A) raising the interest rate while no longer considering the inflation-unemployment tradeoff, impacting features (ii) and (iv); (B) adjusting budget deficits and stabilizing fiscal expectations, impacting feature (iv); (C) measures for reviving economic freedom, with an impact on features (i), (ii), and (iii).

High inflation in many countries will not be defeated by firm monetary policies alone, nor will it be tackled without them. Even if monetary policies are tightened massively, inflation will not fall relatively quickly and sustainably to the desired levels until fiscal expectations are stabilized. 

This book is a collection of studies written from 1993 to 2017 by economists who worked or are still working at the National Bank of Romania. Specifically, the book contains nine such studies, of which eight make up the bulk of another book published in Romanian. I had the honour of being asked to write the forewords for both works. For this reason, the foreword to this book is vastly similar to the one worded for the book published in Romanian. The two forewords are different in that this one makes reference to the two papers that this book contains aside from the one in Romanian and, obviously, does not refer to the studies contained in the book published in Romanian but not included in this book, with three exceptions, about which I will warn the reader right before I refer to them. The reason why I will refer to those three studies, although they are not included in this book, is that they treat similar issues and are more recent. I will make the reader aware of the references to these three papers at the right moment.

During a short time span, the macroeconomic backdrop and monetary policy challenges shifted dramatically in a way hardly seen in the recent history. Thereby, from a prolonged period of subdued inflation to a period of high inflation and potentially stagflation; from persistent and extended efforts to increase the degree of monetary accommodation to sustained actions of tightening to rein in the runaway inflation

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