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Lost Inflation?

Author

Listed:
  • Rod Tyers

    (Business School, University of Western Australia and Research School of Economics, Centre for Applied Macroeconomic Analysis (CAMA), Australian National University)

  • Yixiao Zhou

    (School of Economics and Finance, Curtin Business School, Curtin University)

Abstract

Concern about “lost inflation” has been heightened recently by the apparent inability of central banks in the largest democracies, a decade beyond the GFC, to restore their “safe” CPI inflation ranges. This paper examines the deflationary forces against which monetary policy is now aligned, namely migration, the race to the bottom in capital taxation, and biased technical change, and assesses the consequences looking forward. While inflation rates have edged lower over the past two decades the most important change has been declines in long maturity yields, initially driven by strong growth in high-saving Asia and by redistribution in the advanced economies to high-saving households, and bolstered subsequently by return pessimism due to low growth in measured productivity. Ironically, today’s low rates also stem from conventional monetary policy failure, expanded central bank balance sheets and the resulting global “bond bubble”. Future monetary policy effectiveness as deflationary forces continue will depend in the advanced economies on government interventions to address underlying inequality and financial market “normalisation”.

Suggested Citation

  • Rod Tyers & Yixiao Zhou, 2018. "Lost Inflation?," Economics Discussion / Working Papers 18-01, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:18-01
    Note: MD5 = 158bab805df2c9491af103329fe3d350
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Inflation; productivity; automation; income distribution; tax; transfers; general equilibrium analysis;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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