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Recession and deflation?

Author

Listed:
  • David G. Blanchflower
  • Alex Bryson

Abstract

Central bankers are raising interest rates on the assumption that wage-push inflation may lead to stagflation. This is not the case. Although unemployment is low, the labour market is not ‘tight.’ On the contrary, we show that what matters for wage growth are the non-employment rate and the under-employment rate. Both are high and act as brakes on wage growth. By lowering already low levels of consumer confidence, higher interest rates are liable to exacerbate workers’ inability to maintain their real wages by reducing labour demand still further. Furthermore, we argue inflationary pressures have been generated by short-term supply side problems, rather than excessive demand in the economy. Under these conditions, just as in the Great Recession, we anticipate deflation in the near future, coupled with rising joblessness and recession.

Suggested Citation

  • David G. Blanchflower & Alex Bryson, 2023. "Recession and deflation?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 11(2), pages 214-231, April.
    • Handle: RePEc:elg:rokejn:v:11:y:2023:i:2:p214-231
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    References listed on IDEAS

    as
    1. David G. Blanchflower & Alex Bryson, 2021. "The Economics of Walking About and Predicting Unemployment," NBER Working Papers 29172, National Bureau of Economic Research, Inc.
    2. David G. Blanchflower & Alex Bryson, 2021. "The Economics of Walking About and Predicting US Downturns," DoQSS Working Papers 21-31, Quantitative Social Science - UCL Social Research Institute, University College London.
    Full references (including those not matched with items on IDEAS)

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    1. Blanchflower, David G. & Bryson, Alex, 2023. "Labour Market Expectations and Unemployment in Europe," IZA Discussion Papers 15905, Institute of Labor Economics (IZA).
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    More about this item

    Keywords

    unemployment; non-employment; wages; inflation; labour market;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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