Search Results
Journal Article
Anatomy of the 1981-83 disinflation
Journal Article
Understanding deflation
This Economic Letter examines the distinct features of deflation, discusses why it is a matter of concern to the public and to policymakers in general, and looks at the recent experience of the inflation and deflation in the U.S. and other countries.
Conference Paper
Low inflation: the behavior of financial markets and institutions
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 ...
Journal Article
Top of the ninth: should we accept the conventional wisdom about deflation?
Gary Stern agrees that the probability of deflation is low but questions the notion that deflation would necessarily have severe consequences.
Journal Article
Inflation expectations and the risk of deflation
Predicting the course of inflation is one of the most important challenges facing monetary policymakers. Useful aids to such prediction are the measures of expected future inflation obtained from prices in government bond markets. An examination of recent inflation-indexed and non-indexed U.S. Treasury bond yields suggests that financial market participants believe that the probability of prolonged deflation has become fairly small.
Journal Article
Deflation, corrosive and otherwise
Working Paper
Extracting deflation probability forecasts from Treasury yields
We construct probability forecasts for episodes of price deflation (i.e., a falling price level) using yields on nominal and real U.S. Treasury bonds. The deflation probability forecasts identify two "deflation scares" during the past decade: a mild one following the 2001 recession, and a more serious one starting in late 2008 with the deepening of the financial crisis. The estimated deflation probabilities are generally consistent with those from macroeconomic models and surveys of professional forecasters, but they also provide highfrequency insight into the views of financial market ...
Working Paper
Three great American disinflations
This paper analyzes the role of transparency and credibility in accounting for the widely divergent macroeconomic effects of three episodes of deliberate monetary contraction: the post-Civil War deflation, the post-WWI deflation, and the Volcker disinflation. Using a dynamic general equilibrium model in which private agents use optimal filtering to infer the central bank's nominal anchor, we demonstrate that the salient features of these three historical episodes can be explained by differences in the design and transparency of monetary policy, even without any time variation in economic ...
Journal Article
Are commodity prices foretelling deflation?
Working Paper
Imperfect credibility and inflation persistence
In this paper, we formulate a dynamic general equilibrium model with staggered nominal contracts, in which households and firms use optimal filtering to disentangle persistent and transitory shifts in the monetary policy rule. The calibrated model accounts quite well for the dynamics of output and inflation during the Volcker disinflation, and implies a sacrifice ratio very close to the estimated value. Our approach indicates that inflation persistence and substantial costs of disinflation can be generated in an optimizing-agent framework, without relaxing the assumption of rational ...