Publications: Notes at the Margin

All the Rules Could Be Wrong (October 27, 2014)

 

Few business executives, bankers, politicians, and economists who came of age after 1970 have ever given a thought to deflation. Prices are always assumed to rise. The great fear is that runaway inflation is just around the corner. Today, deflation is not a theory, it is a real threat. Moreover, it seems to already be undermining the powers of central banks as it gains momentum, enfeebling the power of their printing presses. This report asks and answers two questions: do the rules we have followed for the last thirty years apply when the economy is in a liquidity trap?, and will falling commodity prices provide the expected economic stimulus in a deflationary economic environment?

 

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