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The Anti Deflation Bias

Author

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  • Philipp Bagus

    (Department of Applied Economics I, Economic History, and Institutions, and Moral Philosophy, King Juan Carlos University, Campus of Vicalvaro, Faculty of Legal and Social Sciences, Paseo de los Artilleros s/n, Madrid, 28032, Spain)

Abstract

Deflation is widely feared and opposed. This paper provides arguments to explain the anti-deflationary bias. It is argued that governments favour inflation, that the main deflation theories have influenced negatively the public opinion on deflation, and that rent-seeking behaviour and group formation explains why the opposition to deflationary redistribution is stronger than the opposition to inflationary redistribution. Moreover, psychological concepts, such as anchoring, the endowment effect or the availability heuristic have contributed to the fear of deflation by causing a money illusion and a equalisation of deflation and recession.

Suggested Citation

  • Philipp Bagus, 2020. "The Anti Deflation Bias," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 70(2), pages 147-161, June.
    • Handle: RePEc:aka:aoecon:v:70:y:2020:i:2:p:147-161
    DOI: 10.1556/032.2020.00008
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    More about this item

    Keywords

    monetary policy; inflation; deflation; money illusion; endowment effect;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • G40 - Financial Economics - - Behavioral Finance - - - General

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