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Economics of Deflation

Dear Colleague,

 

Please find attached a paper titled “The Economics of Deflation” which provides a comprehensive analysis of the macroeconomic impact of deflation.

 

The main conclusions are:

 

(1) Recent analyses of deflation have over-emphasized asset price deflation, and over-looked the significant adverse debt-service income transfer effects that impact both the corporate & household sectors.

 

(2) An analysis of deflation refutes the claim that Keynesian unemployment is a special case caused by downward price and nominal wage rigidity.

 

(3) Avoiding deflation calls for institutions that promote downward nominal rigidity. However, much economic policy is bent on promoting price and nominal wage flexibility, risking a return of 19th century styled deflations.

 

Sincerely,

 

Thomas Palley

 

Thomas I. Palley

Suite 800

1120 19th Street NW

Washington DC 20036

tel: 202-721-5606

tpalley@xxxxxxxxxx

 

Attachment: Economics of Deflation.doc
Description: Economics of Deflation.doc

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