{"id":56545,"date":"2021-01-29T07:57:49","date_gmt":"2021-01-29T12:57:49","guid":{"rendered":"https:\/\/olduvai.ca\/?p=56545"},"modified":"2021-01-29T07:57:49","modified_gmt":"2021-01-29T12:57:49","slug":"deflation-friend-or-foe","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=56545","title":{"rendered":"Deflation: Friend or Foe?"},"content":{"rendered":"
\n
\n

DEFLATION: FRIEND OR FOE?<\/a><\/h3>\n<\/div>\n<\/header>\n
\n
\n
\n
\n
\"\"<\/figure>\n

Deflation is the most feared economic phenomenon of our time. The reason behind this\u00a0a priori<\/em>\u00a0irrational fear (why should we be afraid of prices going down?) is the Great Depression. The most severe economic crisis of the 20th century was accompanied by a massive deflationary spiral that\u00a0pushed prices down by 25%<\/a>\u00a0between 1929 and 1932 (this is equivalent to an annualized inflation rate of minus 7% over that period). Given the impact that the Great Depression had on the social imaginary of the American and European societies, it isn\u2019t surprising that people tend to associate deflation with crises and economic hardship.<\/p>\n

Fears of deflation have even led monetary authorities all over the world to set positive inflation targets. The ECB, for instance,\u00a0defines<\/a>\u00a0price stability as an annual inflation rate of \u201cbelow, but close to, 2%\u201d even though, strictly speaking, price stability should imply that an annual increase in the price level of 0%.\u00a0 Similarly, the Federal Reserve\u00a0aims<\/a>\u00a0at an inflation rate of 2% over the long run, whereas the Reserve Bank of Australia\u00a0has<\/a>\u00a0an inflation target of between 2 and 3%.<\/p>\n

Despite the bad press deflations gets, the historical evidence suggests that deflation isn\u2019t as bad as people may think. Using a sample of 38 countries over the period 1870-2013, four economists from the Bank for International Settlements\u00a0find<\/a>\u00a0that, on average, countries experienced economic growth during deflation years. In fact, if we look only at the postwar era, data reveals that per capita growth has been higher during deflation years as opposed to inflation years.<\/p>\n

This isn\u2019t the only piece of evidence that supports the idea that deflation isn\u2019t necessarily detrimental to economic growth. A 2004\u00a0paper<\/a> covering 17 countries show that the Great Depression is the only period in the 19th and 20th centuries in which there is a strong link between deflation and depression…<\/p>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

DEFLATION: FRIEND OR FOE? Deflation is the most feared economic phenomenon of our time. The reason behind this\u00a0a priori\u00a0irrational fear (why should we be afraid of prices going down?) is the Great Depression. The most severe economic crisis of the 20th century was accompanied by a massive deflationary spiral that\u00a0pushed prices down by 25%\u00a0between 1929 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[1733,1269,124,7380,202,2310,303,426,19096,3650],"class_list":["post-56545","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bank-for-international-settlements","tag-bis","tag-central-banks","tag-cobden-centre","tag-deflation","tag-depression","tag-fed","tag-inflation","tag-luis-pablo-de-la-horra","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/56545","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=56545"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/56545\/revisions"}],"predecessor-version":[{"id":56546,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/56545\/revisions\/56546"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=56545"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=56545"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=56545"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}