Where danger lurks

Olivier Blanchard 03 October 2014

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Until the 2008 global financial crisis, mainstream US macroeconomics had taken an increasingly benign view of economic fluctuations in output and employment. The crisis has made it clear that this view was wrong and that there is a need for a deep reassessment.

The benign view reflected both factors internal to economics and an external economic environment that for years seemed indeed increasingly benign.

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Topics:  Macroeconomic policy Monetary policy

Tags:  macroeconomics, global crisis, great moderation, rational expectations, nonlinearities, fluctuations, business cycle, monetary policy, inflation, bank runs, deposit insurance, sudden stops, capital flows, liquidity, maturity mismatch, zero lower bound, liquidity trap, capital requirements, credit constraints, precautionary savings, housing boom, Credit crunch, unconventional monetary policy, fiscal policy, sovereign default, diabolical loop, deflation, debt deflation, financial regulation, regulatory arbitrage, DSGE models

Clarifying the debate about deflation concerns

Mickey Levy 21 February 2014

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A common theme among many economic policymakers, financial market participants, and the media is that rich industrialised nations face a high risk of deflation, and that deflation always harms economic performance and so must be combatted with aggressive macroeconomic stimulus. Such broad assessments are misleading, and under certain circumstances may lead to misguided policies. More clarity on the topic is required.

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Topics:  Global crisis Monetary policy

Tags:  eurozone, US, Europe, Japan, deflation, disinflation, quantitative easing

Deflation, debt, and economic stimulus

Richard Wood 03 March 2011

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The US, Japan, and Ireland are suffering from deficient private demand, rising debt, and a tendency to deflation. This column asks what can be done about it.

We begin by assuming that relevant authorities have decided that new money creation is necessary to work against deflationary tendencies and to stimulate the economy. The central issue explored here then is how should such new money creation best be deployed to create the required economic stimulus? 

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Topics:  Macroeconomic policy Monetary policy

Tags:  deflation, fiscal stimulus, quantitative easing, Economic stimulus

Hire Irving Fisher!

Enrique G. Mendoza 12 February 2009

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Topics:  Global crisis Macroeconomic policy

Tags:  deflation, financial crisis, Great Depression, debt

Deflation or disinflation?

Robert Ophèle 11 February 2009

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Inflation refers to a sustained increase in the general price level in an economy. It is not an instantaneous shock limited to the prices of certain goods. It is a persistent and general process. Inflation is fuelled by expectations – when workers and companies expect prices to rise, they adjust upwards their prices and wages accordingly.

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Topics:  Monetary policy

Tags:  France, deflation, disinflation

Deflation or stagflation in the Eurozone?

Sylvester Eijffinger 15 January 2009

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Assessments of European price stability risks outright reversed in recent months.1 Until summer 2008, monetary policy was concerned with inflation pressures from surging commodity and energy prices. Last month, facing possible recession, the European Central Bank (ECB) cut interest rates by an unprecedented 75 basis points. Falling commodity prices and weak demand have eased inflation.

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Topics:  Monetary policy

Tags:  inflation, deflation, monetary decision-making, interest rate lower bound

US price deflation on the way

John Muellbauer, Janine Aron 10 October 2008

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Fed minutes released on October 7 disclosed that as recently as Sept 16, Fed officials thought risks to growth and inflation were roughly equally balanced. And Federal Reserve Chairman Ben Bernanke acknowledged on the same day that though the inflation outlook had improved somewhat, it remained uncertain. The market may have taken these views as representative of central banks around the world, particularly given the ECB decision of October 2 not to reduce rates.

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Topics:  Macroeconomic policy

Tags:  deflation, inflation forecasting

Back to the ‘Thirties with a Twist

Barry Eichengreen 30 August 2008

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One of the chief ways financial market participants make sense of events is by drawing parallels with the past. The subprime crisis, when it first erupted, was widely perceived as the most dangerous financial crisis since the 1930s. The implication was that it was critical to avoid the policy mistakes that transformed that earlier crisis into a macroeconomic disaster. Specifically, it was important to avoid an excessively tight monetary policy.

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Topics:  Economic history Monetary policy

Tags:  US, monetary policy, subprime crisis, deflation

How bad is deflation in Japan?

David E. Weinstein , Christian Broda 22 October 2007

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On the face of it, Japanese deflation does not seem that severe. The latest monthly numbers suggest that over the past twelve months, the non-fresh food component of the CPI is falling at an annual rate of 0.1%. However, we believe that this number seriously understates deflation in Japan – maybe by an order of magnitude.

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Topics:  Monetary policy

Tags:  CPI, Japan, deflation

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