Consequently, inflation tends to drain worker purchasing power in the short run. 8 See, for example, Feldstein (1982). 9 Owing to contractual and other institutional arrangements, it may be difficult to adjust these streams of payments promptly once it emerges that the inflation rate is higher or lower than expected.
In addition, it is essential to recognise that the European financial system is not a closed loop but is extensively integrated with the wider global financial system.