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The Theory of Debt-Deflation: A Possibility of Incompatibility of Goals of Monetary Policy

In: New Trends in Finance and Accounting

Author

Listed:
  • Samy Metrah

    (University of Economics, Prague)

Abstract

This paper provides a detailed exposition of Irving Fisher’s debt-deflation theory as well as its proposed “remedies” against the “vicious cycle”. We argue, using F. A. Hayek’s hypothesis of “dichotomy of rates of interest”, that not only may be the main proposed tool of battling debt-deflation, i.e. preventing the price level from falling, considered self-defeating, in the long run at least, but also that goals of the macroprudential policy and the policy of inflation targeting are inherently incompatible if Fisher’s and Hayek’s theories are taken into account.

Suggested Citation

  • Samy Metrah, 2017. "The Theory of Debt-Deflation: A Possibility of Incompatibility of Goals of Monetary Policy," Springer Proceedings in Business and Economics, in: David Procházka (ed.), New Trends in Finance and Accounting, chapter 0, pages 41-48, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-49559-0_4
    DOI: 10.1007/978-3-319-49559-0_4
    as

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