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Deflation: Economic Significance, Current Risk, and Policy Responses

dc.contributor.authorElwell, Craig K.
dc.date.accessioned2020-11-25T15:59:33Z
dc.date.available2020-11-25T15:59:33Z
dc.date.issued2010-08-30
dc.description.abstract[Excerpt] Deflation generated by a negative demand shock can be disruptive and costly, particularly if it gets built into price expectations that can magnify the negative impulse and increase the economic costs. The experience of the United States during the Great Depression and that of Japan since the 1990s gives strong testimony of this. Several indicators suggest that the risk of deflation in the United States continues despite the end of the economic contraction and the beginning of economic recovery. The Consumer Price Index shows that the inflation rate is low and decelerating, a large output gap persists, money supply growth has slowed, and nominal short-term interest rates continue to be at the zero bound. Together these factors suggest a continuing significant risk of deflation. Nevertheless, there is no direct evidence, so far, that a broad-based and sustained decrease in the price level is occurring. Mainstream economic theory argues that monetary and fiscal stimulus are the macroeconomic policies needed to fight deflation. All are measures aimed at directly or indirectly increasing aggregate demand to boost economic activity, but they will also work in theory to shift consumer and business expectations from deflation to inflation and exert the upward pressure on the price level needed to counter any deflationary forces that may arise.
dc.description.legacydownloadsDeflation_Economic_Signifigance__Current_Risk_and_Policy_Responses.pdf: 354 downloads, before Oct. 1, 2020.
dc.identifier.other1637170
dc.identifier.urihttps://hdl.handle.net/1813/79195
dc.language.isoen_US
dc.subjectdeflation
dc.subjectnegative demand shock
dc.subjecteconomic recovery
dc.subjectfinancial crisis
dc.subjectstimulus
dc.subjectpublic policy
dc.titleDeflation: Economic Significance, Current Risk, and Policy Responses
dc.typeunassigned
local.authorAffiliationElwell, Craig K.: Congressional Research Service

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