Contributions to inflation and deflation in today's market economy

There are three possible price movements in a market economy: stability, inflation, and deflation. Inflation and deflation are defined in this article as changes in the purchasing power of money caused by the money creation. Inflation and deflation have many asymmetric, and even some symmetric, effects. Both price phenomena are undesirable, but the consequences of deflation are potentially graver. In the contemporary two-tier banking system the money issue and circulation cannot be fully backed by gold or by other bank reserves, and so monetary policy should be primarily oriented to the quality of money, i.e., to price stability. This is the main or one of the main goals of current central bank monetary policy in market economies. However, price developments are influenced by many factors and the price stability cannot be always maintained.