Economies the world-over face uncertainties. Though such uncertainties are `ever-present', issues relating to `political instability, ideological polarization and political fragmentation' have surfaced and are being articulated in such a manner that they leave a considerable impact on modern economies. Related issues concerning peace and stability put a question mark over the impact of uncertainties on economies.

In this context, monetarists eye `inflation' as a major factor that creates a `destabilizing' effect on economies. It will be interesting to know the short-run and long-run effects of such dynamics on big and small economies.

The paper, "Seasonal Patterns of Inflation Uncertainty for the US Economy: An EGARCH Model Results", by Hakan Berument, Nezir Kose and Afsin Sahin, assesses the presence of uncertainties alongside inflation and their impact on economy. The study pertains to the US a `big open economy' and encompasses a pretty long period of about 60 years from January 1947 to April 2008. This study opens the debate over the impact of inflation uncertainties on economies during various time periods, seasonal variations of such impact, and the role of interest rates in managing money supply.

Undoubtedly, central banks would be concerned about such uncertainties. "Inflation Expectations and Monetary Policy Rules: Findings from Indonesian Economy", by Syurkani Ishak-Kasim and Abdullahi D Ahmed, provides an insight into the conduct of monetary policy by Bank Indonesia. In the light of our discussion, this paper is important because it looks at monetary policy in the wake of implementation of inflation targeting. It is also important to note that the paper highlights the credibility issue of a central bank brought to focus by way of targeting core inflation as the central bank's monetary policy objective. `Credibility' of central banks has become a highly debatable issue in the present-day scenario of economies being hit by the `missile' of a downslide in the `quality' of banking operations.

A study of uncertainties and impact of such uncertainties on economies would be incomplete without a reference to Israel. Yaron Zelekha's, "Is There a Long-Term Effect of Inflation Uncertainty on Unemployment?", is a valuable contribution to this body of knowledge. The study takes note of inflation uncertainty in the Israeli economy over different time periods. The conclusion that various issues pertaining to inflation have not been resolved conclusively, establishes the linkage between `uncertainties, time periods, interest rates, inflation and economies'. It also conclusively proves that `employment generation' in the process of economic development remains a critical issue that could upset the `apple-cart' of progressive economies.

The `criticality' of interest rates, the role of central banks and of governments thereof have been assessed in Christos F Stournaras's paper, "Governmental Budget Deficits and Interest Rates: A Post Keynesian Approach to the Ricardian Equivalence Proposition in Greece". This contribution seeks to blend the causal linkages between `uncertainties, time periods, interest rates, inflation and economies' with a `classical' theoretical approach. The evidence demonstrates a decisive role for macroeconomic policy in shaping interest rates suggesting that national, rather than the international factors or the structure of the economy per se, seem to be more important in explaining interest rates behavior in Greece.

As the study relating to `linkages' is taken to an international plane, issues pertaining to exchange rates crop up which have a bearing on the determination of macroeconomic policy. Quite rightly, Thabo M Mokoena, Rangan Gupta and Renee van Eyden, termed such issues as `puzzles'. Their paper, "Exchange Rate Puzzles: A Review of the Recent Theoretical and Empirical Developments", provides the right framework for exploring the already mentioned `linkages' against the background of volatilities in exchange rates and the `domino effect' of economic instability.

Despite the negative sentiment in the international monetary system throughout the year 2009, Joseph Stiglitz believed that the `Reserve Bank of India knew its job better…', while obviously comparing it with more illustrious institutions in Europe and the West. Ajit R Joshi and Debashis Acharya substantiate such views in their paper, "Inflation and Trade Openness: Empirical Investigation for India". They prove that even under adverse circumstances, better monetary management and supply management can halt inflation growth and ensure that the economy still maintains the charted growth path. Significantly, this study also includes short-run and long-run factors that influence inflation and resultant economic growth.

Hence, it is time for monetary economists to theorize `Risk Management' practices for better monetary management during short and long periods, for small and big economies, keeping in view the uncertainties in the politico-economic environment.

-- Y G Sivaram
Consulting Editor