Conference Paper

Low inflation: the behavior of financial markets and institutions

Abstract: This paper provides a broad overview of the potential impact of low inflation (deflation) on U.S. financial markets and institutions. It is argued that the contemporary experience of Japan and the historical experience of the United States in the 1920s and 1930s offer only limited insights into the potential impact of low inflation (deflation) on today's U.S. financial system. A number of potential implications are discussed including a decline in secondary market trading and a trend towards reintermediation. In addition, low inflation/deflation is likely to have a material effect on bank duration and convexity exposures.

Keywords: Inflation (Finance); Interest rates; Deflation (Finance);

Status: Published in Journal of money, credit and banking, v. 32, no. 4, pt. 2 (November 2000) ; Monetary policy in a low-inflation environment

Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Conference Series ; [Proceedings]

Publication Date: 2000

Pages: 1058-1092