The financial effect of inflation

Abstract

This work aims to demonstrate the double effect that inflation has on the interest rate. The «mainstream» economic theory has not considered the financial part of economic processes. Traditionally — and in particular in this case — only the economic effect has been taken into account, but there is also a financial effect that can significantly distort resource allocation. This approach makes it possible to see that institutional factors and the treatment of real time as a determining phenomenon contribute to the non-neutrality of money in the economy.