Abstract
After an absence of almost half a century, the spectre of deflation is once again haunting the corridors of central banks and finance ministries in the industrial world. The great deflations of the nineteenth century and 1930s made way for the post-Second World War era of persistent inflation — low to moderate in the advanced industrial countries, moderate to high (with occasional bursts of hyperinflation) in developing and transition countries and in emerging markets. The recent renewed concern with deflation is due in part to the historical association, at least during the interwar years, of deflationary episodes with financial crises, recession, stagnation and even depression. It is also prompted by the fear that, in deflationary conditions, nominal interest rates may come close to their lower bound of zero, at which point conventional monetary policy is thought to lose most if not all of its effectiveness.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsPreview
Unable to display preview. Download preview PDF.
References
Atkeson, Andrew and Patrick J. Kehoe (2004) Deflation and Depression: Is There an Empirical Link, NBER Working Paper No. 10268, January.
Bailey, Martin J. (1956) ‘The Welfare Costs of Inflationary Finance’, Journal of Political Economy, vol. 64, no. 2, pp. 93–110.
Bewley, T.F. (1999) Why Wages Don’t Fall During a Recession, Cambridge, Mass.: Harvard University Press.
Bordo, Michael D. and Angela Redish (2003) Is Deflation Depressing? Evidence from the Classical Gold Standard, NBER Working Paper No. 9520, February.
Bordo, Michael D., John Landon Lane and Angela Redish (2004), Good Versus Bad Deflation: Lessons from the Gold Standard Era, NBER Working Paper No. 10329, February.
Boskin, Michael J., Ellen Dulberger, Rolet Gordon, Zvi Griliches and Dale Jorgenson (1996) Toward a More Accurate Measure of the Cost of Living: Final Report to the Senate Finance Committee, Washington, DC. US Government Printing Office, for the US Senate Committee on Finance, December.
Boskin, Michael J., Eller R. Dulberger, Rolet J. Gordon, Zvi Griliches and Dale Jorgenson (1998) ‘Consumer Prices, the Consumer Price Index and the Cost of Living’, Journal of Economic Perspectives, 12(1), Winter 1998, pp. 3–26.
Buiter, Willem H. (2003a) Deflation Prevention and Cure, NBER Working Paper No. W9623, April.
Buiter, Willem H. (2003b) Appendix to Deflation: Prevention and Cure, European Bank for Reconstruction and Development mimeo, 13 July, available at http://www.nber.org/~wbuiter/defap.pdf.
Buiter, Willem H. (2003c) Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap, NBER Working Paper No. W10163, December.
Buiter, Willem H. and Nikolaos Panigirtzoglou (2001) ‘Liquidity Traps: How to Avoid Them and How to Escape Them’, in Wim F.V. Vanthoor and Joke Mooi (eds), Reflections on Economics and Econometrics: Essays in Honour of Martin M.G. Fase, Amsterdam: De Nederlandsche Bank, pp. 13–58.
Buiter, Willem H. and Nikolaos Panigirtzoglou (2003) ‘Overcoming the Zero Bound on Nominal Interest Rates with Negative Interest on Currency: Gesell’s Solution’, Economic Journal, vol. 31, no. 490, pp. 723–46.
Feldstein, Martin (2003) ‘The Role for Discretionary Fiscal Policy in a Low Interest Rate Environment’, in the 2002 Federal Reserve Bank of Kansas City Annual Conference volume, Rethinking Stabilization Policy, Kansas City: Kansas City Federal Reserve Bank.
Fisher, Irving [1932] Booms and Depressions, New York: Adelphi Company.
Fisher, Irving [1933a] ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, March, pp. 337–57.
Fisher, Irving [1933b] Stamp Scrip, New York: Adelphi Company.
Friedman, Milton (1969) ‘The Optimum Quantity of Money’, in The Optimum Quantity of Money and Other Essays, Chicago: Aldine, pp. 1–50.
Friedman, Milton (1973) Money and Economic Development, the Horowitz Lectures of 1972, New York: Praeger.
Gesell, Silvio (1949) Die Natuerliche Wirtschaftsordnung, Nuinberg: Rudolf Zitzman Verlag, available in English as The Natural Economic Order, London: Peter Owen Ltd, 1958.
Goodfriend, Marvin (2000) ‘Overcoming the Zero Bound on Interest Rate Policy’, Journal of Money, Credit and Banking, vol. 32, no. 4, Part 2, pp. 1007–35.
Journal of Money, Credit and Banking (2002) Monetary Policy in a Low-Inflation Environment, vol. 32, no. 4, Part 2.
King, Mervyn (2002) ‘The inflation target ten years on’, Bank of England Quarterly Bulletin, vol. 42, no. 4, pp. 459–74.
Nickell, S. and G. Quintini (2003) ‘Nominal Wage Rigidity and the Rate of Inflation’, Economic Journal, vol. 113, no. 490, pp. 746–62.
Sargent, Thomas J. and Neil Wallace (1981) ‘Some unpleasant monetarist Arithmetic’, Quarterly Review, Fall, Federal Reserve Bank of Minneapolis.
Svensson, Lars E.O. (2000) ‘The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap’, Monetary and Economic Studies (Special Edition), February, pp. 277–316.
Svensson, Lars E.O. (2003) Escaping from a Liquidity Trap and Deflation: a Foolproof Way and Others, NBER Working Paper No. 10195, December.
Editor information
Editors and Affiliations
Copyright information
© 2004 Willem Buiter
About this chapter
Cite this chapter
Buiter, W. (2004). The Return of Deflation: What Can Central Banks Do?. In: Stephenson, H. (eds) Challenges for Europe. Palgrave Macmillan, London. https://doi.org/10.1057/9780230524491_3
Download citation
DOI: https://doi.org/10.1057/9780230524491_3
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-51878-4
Online ISBN: 978-0-230-52449-1
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)