The Costs of Deflation: Are they Really so High?
The Costs of Deflation: Are they Really so High?

Author(s): Stanislav Polouček, Martin Hodula
Subject(s): Supranational / Global Economy, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: ARMA; cyclicity; deflation; growth;
Summary/Abstract: The recent financial crisis raised several challenges for central banks. Monetary policy that was fundamentally based on interest rate regulation was neutralized by a liquidity trap. Central banks started to look for and use unconventional instruments: quantitative easing (QE), negative interest rates, currency floor. The reason for such radical steps was fear of deflation: most economists consider deflation (a fall in the price level) as a very costly development of economies. It seems politicians and central bankers are even more afraid of deflation. The Swiss National Bank (SNB) is one of the first central banks that started to use unconventional monetary policy measures.

• Details
• Contents