Deflations in History

Abstract

Even though experiences with falling prices have been rare during the postwar period, deflation was widespread during the 1930s, and recorded historical episodes extend back to ancient and medieval times. With deflation having resurfaced as a major policy concern in the years following the global financial crisis, this chapter compares the properties of the earlier deflations with more recent episodes in both Europe and Asia. In focusing upon the determinants of deflation, its impact upon the economy as a whole, and the role of monetary policy, we see that even though deflation remains, in essence, a monetary phenomenon, combatting its effects, remains far from straightforward. A striking feature of the twenty-first-century deflations, for example, has been the discrepancy between consumer and producer price movements seen after 2008 that occurred in conjunction with sharp declines in commodity prices. Policymakers both past and present have had to contend with a variety of downward pressures on the money supply as well as complications arising from supply shocks and other negative forces.