Prime Minister Shinzo Abe has pressed the Bank of Japan (BOJ) to be more aggressive in combating deflation, in a step seen by some as part of the global currency wars. Policies of the new Japanese government include organization of a new stimulus package and the implementation of a true monetary revolution. By injecting huge […]
It did not take long for the trillion dollar rescue in Europe to stir second thoughts in global financial markets. Late Sunday night in Brussels Europe assembled its “BIG package” to fight its sovereign debt crisis and any contagion from Greece. On Monday global markets rallied. Yet since Tuesday, the euro has weakened again. Evidently […]
In most advanced industrial countries, the value of public pension benefits is protected by annual cost-of-living adjustments, also known as COLAs. Every year, the value of pension benefits is adjusted upward, in line with inflation, wages, or a combination of the two.1 The adjustments are meant to protect the purchasing power of retirees against inflation. […]
Some commentators have begun suggesting that the Federal Reserve should announce an inflation target now, with the idea that it will prevent inflation arising from the coming massive fiscal stimulus. In my opinion, it couldn’t hurt. As I argued with respect to Japan in 1998 [pdf], or as Ben S. Bernanke, Frederic S. Mishkin, and […]
The current consensus view (e.g., as seen in the World Bank’s Global Economic Prospects) is that we are having a serious downturn, with annualized growth for the fourth quarter in the United States at minus 4 percent or worse. But the consensus is that a recovery will be underway by mid-2009 in the United States […]
Suddenly people are worrying about deflation risks to the US economy. While the Fed was quite right to set aside inflation concerns when it lowered its benchmark interest rate this week, recent data on the outlook and the global slowdown does not indicate that we are at risk of deflation. It is unrealistic to think that we are.
First, asset price declines—even large and widespread ones as in US housing markets—almost never result in broader price declines. As I demonstrated in a paper [pdf], the bursting of only 2 out of 44 stock or real estate bubbles led to instances of consumer price index (CPI) deflation (and 16 out of 18 prior episodes of deflation in advanced economies were not preceded or accompanied by asset price busts).