For the first time since the 1930s, many worry that the world's economy faces the prospect of deflation - accompanied by massive job lossesÑon a global scale. In a rather hopeful sign, policymakers from euroland to Japan to America all seem to recognize the threat that falling prices pose to markets. Given the singleminded pursuit of deflationary policies over the past decade, this does come as something of a surprise. But policymakers - especially central bankers - in Europe and the United States seem to have little inkling of how to stave off deflation, with the result that prices are already falling in much of the world. Contrary to widespread beliefs, the worst outcome will not be avoided if the only response is to balance budgets and introduce new monetary policy gimmicks. To the contrary, policymakers should increase deficits to at least 7 percent of GDP.
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- Dimitri B. Papadimitriou & L. Randall Wray, 2003.
"Understanding Deflation: Treating the Disease, Not the Symptoms,"
Economics Working Paper Archive
wp_392, Levy Economics Institute.
- L. Randall Wray & Dimitri B. Papadimitriou, . "Understanding Deflation: Treating the Disease, Not the Symptoms," Economics Public Policy Brief Archive ppb_74, Levy Economics Institute.
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