Back to the Future?: Assessing the Deflation Record
Bank for International Settlements, Monetary and Economic Department, 2004 - Deflation (Finance) - 53 pages
The rhetoric of deflation has become more prevalent in policy circles and in the press despite the fact that deflation has been a rare phenomenon in modern fiat currency economies. To better understand the nature of deflation, this paper looks back to a period when deflation was a regular feature of the economic environment, across both time and a wide set of countries. One feature of the deflation record stands clear. During the 19th century and early 20th century, deflation was not generally associated with persistent and deep economic malaise. Most periods of deflation also appear to have been largely unanticipated, with interest rates rarely approaching their zero lower bound. One notable exception to this typical pattern was the Great Depression of the early 1930s, the event that nowadays colours current general perceptions of what deflationary episodes might look like. At the risk of oversimplification, one way to think about this broad sweep of history is that deflations come in three basic types: the good, the bad and the ugly. The paper then jumps forward in time, seeking to draw lessons from the past about the possibility of future episodes of deflation and their characteristics. In doing so, it pays particular attention to the similarities and differences in the monetary and financial regimes prevailing now and in the past. While great care should be taken in any such exercise, the paper concludes that certain features of the past can help to shed some light on the policy challenges that policymakers might face in the future.
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the good the bad and the ugly?
Assessing the prospect of deﬂation in the current lowinﬂation environment
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adjustments annual Australia Average Belgium benign Bordo Borio and Lowe Canada coefﬁcient Colombia conﬁrms constraint correlation costs of deﬂation CPI peak CPI Wholesale GDP cross-country debt deﬂation decline deﬁned deﬂationary episodes Denmark Depression economic activity Eichengreen episodes of deﬂation equity prices evidence Federal Reserve ﬁnancial ﬁnancial regime ﬁnding Finland ﬁrst ﬁve-year ﬂuctuations Forecast France frequency Germany Global Financial Data gold standard gold standard period historical record Hong Kong SAR inﬂation expectations inﬂation rates inﬂation targeting Intemational interwar Italy Jackson Hole Japan Joumal of Economic Joumal of Money low inﬂation Maddison Median Minimum Maximum Minimum 0.0 monetary and ﬁnancial monetary policy monetary regime national data Netherlands nominal interest rates Norway paper persistence perspective policy rate price index price level quantitative easing real interest rate reﬂects signiﬁcant Siklos speciﬁc statistics stylised facts suggests Sweden Switzerland unit root tests United Kingdom Wholesale GDP deﬂator zero lower bound