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Low Inflation, Deflation, and Policies for Future Price Stability

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  • Taylor, John-B

    (Stanford U)

Abstract

The effects of three different inflationary environments--high inflation, low inflation, and negative inflation--on real output stability are examined by looking at the experiences of Japan and the United States during the last 30 years. I begin by going back to see how things looked from the vantage point of the 1987 international conference at the Bank of Japan. Next I trace out how economic performance has evolved since then. Economic performance appears to have been better with low inflation than with either high inflation or negative inflation. I also look at some of the reasons for the different inflationary environments. I take both an interest rate policy rule approach and a quantity theory of money approach. Both approaches suggest that monetary policy has been the key factor in generating the different inflationary experiences.

Suggested Citation

  • Taylor, John-B, 2001. "Low Inflation, Deflation, and Policies for Future Price Stability," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 35-51, February.
  • Handle: RePEc:ime:imemes:v:19:y:2001:i:s1:p:35-51
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    References listed on IDEAS

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    1. Rudebusch, Glenn D. & Svensson, Lars E. O., 2002. "Eurosystem monetary targeting: Lessons from U.S. data," European Economic Review, Elsevier, vol. 46(3), pages 417-442, March.
    2. Higo, Masahiro & Nakada, Sachiko-Kuroda, 1999. "What Determines the Relation between the Output Gap and Inflation ? An International Comparison of Inflation Expectations and Staggered Wage Adjustment," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 129-155, December.
    3. Mori, Naruki & Shiratsuka, Shigenori & Taguchi, Hiroo, 2001. "Policy Responses to the Post-bubble Adjustments in Japan: A Tentative Review," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 53-102, February.
    4. Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February.
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    Citations

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    Cited by:

    1. repec:sgh:gosnar:y:2017:i:5:p:51-72 is not listed on IDEAS
    2. Buiter, Willem H., 2003. "Deflation: Prevention and Cure," CEPR Discussion Papers 3869, C.E.P.R. Discussion Papers.
    3. Takatoshi Ito & Frederic S. Mishkin, 2006. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Chapters,in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 131-202 National Bureau of Economic Research, Inc.
    4. Hunter, John & Menla Ali, Faek, 2014. "Money demand instability and real exchange rate persistence in the monetary model of USD–JPY exchange rate," Economic Modelling, Elsevier, vol. 40(C), pages 42-51.
    5. Noritaka Kudoh, 2009. "A global analysis of liquidity effects, interest rate rules, and deflationary traps," Economics Bulletin, AccessEcon, vol. 29(2), pages 1492-1498.
    6. James Harrigan & Kenneth Kuttner, 2004. "Lost Decade in Translation: Did the US Learn from Japan's Post-Bubble Mistakes?," NBER Working Papers 10938, National Bureau of Economic Research, Inc.
    7. Michal Jurek & Pawel Marszalek, 2015. "Policy alternatives for the relationship between ECB monetary and financial policies and new member states," Working papers wpaper112, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    8. Kudoh, Noritaka, 2005. "Monetary policy arithmetic for a deflationary economy," Economics Letters, Elsevier, vol. 87(2), pages 161-167, May.

    More about this item

    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
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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