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Low inflation: the behavior of financial markets and institutions

Author

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  • Anthony Saunders

Abstract

This paper provides a broad overview of the potential impact of low inflation (deflation) on U.S. financial markets and institutions. It is argued that the contemporary experience of Japan and the historical experience of the United States in the 1920s and 1930s offer only limited insights into the potential impact of low inflation (deflation) on today's U.S. financial system. A number of potential implications are discussed including a decline in secondary market trading and a trend towards reintermediation. In addition, low inflation/deflation is likely to have a material effect on bank duration and convexity exposures.

Suggested Citation

  • Anthony Saunders, 2000. "Low inflation: the behavior of financial markets and institutions," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1058-1092.
    • Handle: RePEc:fip:fedbcp:y:2000:p:1058-1092
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    Cited by:

    1. David M. Arseneau, 2020. "How Would U.S. Banks Fare in a Negative Interest Rate Environment?," International Journal of Central Banking, International Journal of Central Banking, vol. 16(5), pages 269-308, October.
    2. Florian Heider & Farzad Saidi & Glenn Schepens, 2019. "Life below Zero: Bank Lending under Negative Policy Rates," Review of Financial Studies, Society for Financial Studies, vol. 32(10), pages 3728-3761.
    3. Chappell, Henry W. & McGregor, Rob Roy, 2018. "Committee decision-making at Sweden's Riksbank," European Journal of Political Economy, Elsevier, vol. 53(C), pages 120-133.
    4. Eric Powers, 2021. "The Optimality of Call Provision Terms," Management Science, INFORMS, vol. 67(10), pages 6581-6601, October.

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