Perils of price deflations: an analysis of the Great Depression
Abstract: If a central bank adopted a zero inflation target, it would, in practice, occasionally deviate up and down from that rate, and the economy would experience episodes of mild inflation and deflation. Is deflation-a decrease in the level of prices-a cause for concern? Deflation can cause output to decline, but to what extent? This Economic Commentary explores how much of a problem deflation might be for modern economies by estimating the effect of massive price declines on output during the Great Depression. The authors find that while deflation can cause output to decline, mild episodes of deflation are unlikely to be a problem.
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of Cleveland
Part of Series: Economic Commentary
Publication Date: 2001
Order Number: 2