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Deflation and Monetary Policy in a Historical Perspective: Remembering the Past or Being Condemned to Repeat It?

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  • Michael D. Bordo
  • Andrew Filardo

Abstract

What does the historical record tell us about how to conduct monetary policy in a deflationary environment? We present a broad cross-country historical study of deflation over the past two centuries in order to shed light on current policy challenges. We first review the theoretical literature on deflation. We then characterize deflation by distinguishing among the "good, the bad and the ugly" ones - considering both empirical determinants and historical narratives of each type. Emphasis is put on the linkages between the current inflation environment and that of the gold standard period. Particular attention is also put on what the historical record reveals about policies to escape undesirable deflation. In this regard we develop a policy typology based on the relative merits of interest rate and monetary instruments in combating different types of inflation/deflation behavior.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10833.

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Date of creation: Oct 2004
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Publication status: published as Bordo, Michael and Andrew Filardo. "Deflation And Monetary Policy In A Historical Perspective: Remembering The Past Or Being Condemned To Repeat It?," Economic Policy, 2005, v20(44,Oct), 799-844.
Handle: RePEc:nbr:nberwo:10833

Note: DAE ME
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  1. Michael D. Bordo & Ehsan U. Choudhri & Anna J. Schwartz, 1999. "Was Expansionary Monetary Policy Feasible During the Great Contraction? An Examination of the Gold Standard Constraint," NBER Working Papers 7125, National Bureau of Economic Research, Inc.
  2. Svensson, Lars, 1999. "How Should Monetary Policy Be Conducted in an Era of Price Stability," Seminar Papers, Stockholm University, Institute for International Economic Studies 680, Stockholm University, Institute for International Economic Studies.
  3. Kenneth J. McLaughlin, 1999. "Are nominal wage changes skewed away from wage cuts?," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 117-132.
  4. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(1), pages 1-28, February.
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Cited by:
  1. Michael D. Bordo, 2011. "A Historical Perspective on the Crisis of 2007–08," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 2, pages 011-027 Central Bank of Chile.
  2. Beckworth, David, 2007. "The postbellum deflation and its lessons for today," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 18(2), pages 195-214, August.
  3. Claudio Morana, 2004. "The Japanese Deflation: Has It Had Real Effects? Could It Have Been Avoided?," ICER Working Papers, ICER - International Centre for Economic Research 29-2004, ICER - International Centre for Economic Research.
  4. Assenmacher-Wesche, Katrin & Gerlach, Stefan & Sekine, Toshitaka, 2008. "Monetary Factors and Inflation in Japan," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6650, C.E.P.R. Discussion Papers.
  5. Gauti B. Eggertsson & Benjamin Pugsley, 2006. "The Mistake of 1937: A General Equilibrium Analysis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(S1), pages 151-190, December.
  6. Goetz von Peter, 2005. "Debt-Deflation: Concepts, and a Stylised Model," Macroeconomics, EconWPA 0505001, EconWPA.
  7. Paul Levine & Joseph Pearlman & Bo Yang, 2007. "The Credibility Problem Revisited: Thirty Years on from Kydland and Prescott," School of Economics Discussion Papers, School of Economics, University of Surrey 1807, School of Economics, University of Surrey.
  8. Dieter Gerdesmeier & Hans-Eggert Reimers & Barbara Roffia, 2011. "Early Warning Indicators for Asset Price Booms," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 1-19, June.
  9. Ulrich van Suntum & Metin Kaptan & Cordelius Ilgmann, . "Reducing the lower bound on market interest rates," Working Papers, Institute of Spatial and Housing Economics, Munster Universitary 200103, Institute of Spatial and Housing Economics, Munster Universitary.
  10. Goetz von Peter, 2005. "Debt-deflation: concepts and a stylised model," BIS Working Papers 176, Bank for International Settlements.
  11. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(3), pages 569-596.
  12. Rockoff, Hugh & White, Eugene N., 2012. "Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo," MPRA Paper 49672, University Library of Munich, Germany, revised May 2013.
  13. Michael D. Bordo & Hugh Rockoff, 2013. "Not Just the Great Contraction: Friedman and Schwartz’s A Monetary History of the United States 1867 to 1960," NBER Working Papers 18828, National Bureau of Economic Research, Inc.
  14. Michael D. Bordo, 2008. "An Historical Perspective on the Crisis of 2007-2008," NBER Working Papers 14569, National Bureau of Economic Research, Inc.
  15. Dieter Gerdesmeier & Hans‐Eggert Reimers & Barbara Roffia, 2010. "Asset Price Misalignments and the Role of Money and Credit," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 13(3), pages 377-407, Winter.

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