IMPACT OF THE MONETARY POLICY ON NECROECONOMY

Abstract

The issue of inflation’s impact on economic growth – both in general context and, specifically, in that of post-Communist transformation, has been a subject of numerous studies. One of the most common themes that has often been subject to debate among the economist and political circles is the restrictive monetary policy pursued by the central bank, which is the key to both the stability of the exchange rate of national currency, and a low inflation rate. Critics argue that such a monetary policy is a main obstacle that prevents the country from achieving greater economic growth and, therefore, insist that the government should increase money supply and, thereby, allow devaluation of currency and a higher inflation rate.

The most of enterprises in post-Communist countries that come from the Communist epoch own outdated equipment and technologies which can not produce competitive (high-quality and low-cost) goods. In other words, the shares of “necroeconomy” in the overall national economy of many post-Communist countries are still  very  high.  Foreign  investments  represent  one  of  the  most effective  factors  of improving  these  countries manufacturing potential. From the standpoint of foreign partners, growing inflation rate is very likely to be interpreted as a deviation from the stabilization course, in which case the flow of foreign investments into economy will be delayed for indefinite time. This means that under the conditions of higher inflation rate, nor the third source of production enhancing investments will be available. The same situation will be resulted in a case of devaluation of the national currency because of existing of the necroeconomy.