The Bank of England, in its Quarterly Bulletin, has taken a look at deflation. It warns of the danger of demonising deflation: “It is useful to acknowledge that the adverse economic outcomes that often accompany deflationary episodes may not have been entirely caused by the experience of deflation itself but rather by the circumstances that caused inflation to fall into negative territory.”
But it also warns of the risks of debt deflation and of the effect of falling prices being amplified by stickiness in money wages. The chapter from the bulletin is here.
Originally published at David Smith’s EconomicsUK blog and reproduced here with the author’s permission.
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