Aux portes de la déflation ?

Like the Great Depression or the Japanese crisis of the 1990s, the current crisis was triggered by a major shock that paralysed the international financial system. Fears of a downward spiral are looming again as plummeting assets prices and economic activity both pull consumer prices down. This study analyzes how an economy enters deflation; the reasons why it remains stuck there, and evokes the possible ways out of deflation. The entry of an economy into deflation is most likely when inflationary pressures are mild, as is the case today. Monetary policy becomes quickly ineffective and so further brakes inflation. In their turn, increased bankruptcies lower the price of capital and prevent new investments. The entry into the liquidity trap reduces the scope for monetary policies. Measures to clean up the financial system as well as active fiscal policies are thus necessary to accompany ailing monetary policies.