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Should the dangers of deflation be dismissed?

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  • Eichengreen, Barry
  • Park, Donghyun
  • Shin, Kwanho

Abstract

Deflation has emerged as a concern for Asian policy makers. The traditional view is this concern is warranted – that deflation can lead to a vicious cycle of falling demand and prices, and is therefore a dangerous condition. However, another revisionist school of thought emphasizes the role of positive supply shocks in deflation and takes a more benign view of the phenomenon. In a recent paper, Borio et al. (2015) find some evidence which casts doubt on the traditional view. In this paper, we re-visit these findings using alternative measures of deflation. While we find some grounds for concern about the harmful effect of deflation on growth, our results also raise significant questions about the revisionist view.

Suggested Citation

  • Eichengreen, Barry & Park, Donghyun & Shin, Kwanho, 2017. "Should the dangers of deflation be dismissed?," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 287-307.
    • Handle: RePEc:eee:jmacro:v:52:y:2017:i:c:p:287-307
    DOI: 10.1016/j.jmacro.2017.04.003
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    References listed on IDEAS

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    Cited by:

    1. Zhao, Yujie & Zhou, Hong & Leus, Roel, 2022. "Recovery from demand disruption: Two-stage financing strategy for a capital-constrained supply chain under uncertainty," European Journal of Operational Research, Elsevier, vol. 303(2), pages 699-718.
    2. Ryan Niladri Banerjee & Aaron Mehrotra, 2018. "Deflation expectations," BIS Working Papers 699, Bank for International Settlements.

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    More about this item

    Keywords

    Deflation; Producer prices; Growth;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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