Deflation
in sentence
696 examples of Deflation in a sentence
The eurozone is the only large developed economy where unemployment remains substantial, and thus the only economy where the case could be made for a downside risk of
deflation.
This is the exact opposite of what the
deflation
hawks warn about.
The popular “discouraged worker” hypothesis holds that a slide into
deflation
is costly, because a long recession induces workers to leave the labor force altogether.
If this turns to full-blown deflation, accompanied by uncontrolled rising real interest rates, the risk to growth would be serious.
With few options for fighting deflation, countries have resorted to competitive devaluations.
During the pre-crisis Great Moderation, restraining lending through regulatory tools probably would have worked, because it was unlikely to push the economy into deflation, as hiking interest rates would have done.
Deflation
would weaken aggregate demand by raising the real (inflation-adjusted) value of household and corporate debt, and by increasing real interest rates.
European Central Bank President Mario Draghi has emphasized his concern that the euro’s rise over the past three years has increased the risk of
deflation.
These countries will go through a slump that will reduce their inflation (perhaps bringing them close to deflation) improve their competitiveness, and reduce their current-account deficits.
Conversely, Germany, which has suffered from relative
deflation
and a long slump under the euro, will experience an inflationary boom that will reduce its competitiveness and current-account surplus.
If they take away the monetary and fiscal stimulus too soon – when private demand remains shaky – there is a risk of falling back into recession and
deflation.
While fiscal austerity may be necessary in countries with large deficits and debt, raising taxes and cutting government spending may make the recession and
deflation
worse.
Seventh, in countries where private and public debt levels are unsustainable – household debt in countries where the housing boom has gone bust and debts of governments, like Greece’s, that suffer from insolvency rather than just illiquidity – liabilities should be restructured and reduced to prevent a severe debt
deflation
and contraction of spending.
In general, deleveraging by households, governments, and financial institutions should be gradual – and supported by currency weakening – if we are to avoid a double-dip recession and a worsening of
deflation.
Membership in the same monetary zone as Germany will condemn these countries to years of deflation, high unemployment, and domestic political turmoil.
Remarkably, the European Banking Authority’s latest stress test for the eurozone’s banks does not contemplate the possibility of
deflation
in its adverse scenario.
While Germany is still trying to banish the specter of hyperinflation with strict eurozone austerity measures, the EU crisis countries are facing a real threat of deflation, with potentially disastrous consequences.
Hungary, where democratic backsliding appears to be taking hold, provides a foretaste of a Europe in which the eurozone crisis and
deflation
persist.
A debate has been mounting for some time between policy hawks, who warn that central banks’ asset purchases and near-zero interest rates fuel financial instability and inflation risks, and doves, whose main fear is
deflation.
But, rather than borrow to invest, firms cut investment to pay down debt, driving two decades of stagnation and
deflation.
Since 2010, I have been emphasizing the key role played by policy in keeping rates low in a post-crisis era characterized by large overhangs of public and private debt in the advanced economies and a tendency toward
deflation.
In the 1930s, in the midst of economic depression and sharp deflation, US Treasury bills sometimes traded at negative yields (and real returns were still positive).
Instead, the paper’s authors argued that Japan’s “lost decades” of anemic growth and
deflation
could have been avoided had policymakers shifted to stimulus more quickly and with far greater force.
Indeed, there is increasing worry about deflation, which increases leverage and the burden of debt levels that are already too high.
Likewise, a rapid
deflation
in prices and wages, known as an “internal devaluation,” would lead to five years of ever-deepening depression.
Some argue that Greece’s real GDP would be much lower in an exit scenario than it would be during the hard slog of
deflation.
But that is logically flawed: even with deflation, real purchasing power would fall, and the real value of debts would rise (debt deflation), as the real depreciation occurs.
When it recently fell into technical deflation, the European Central Bank finally pulled the trigger on aggressive easing and launched a combination of quantitative easing (including sovereign-bond purchases) and negative policy rates.
But, for Japan, which has been struggling with
deflation
for a generation, it is a risk worth taking.
The BOJ, by demonstrating that aggressive money creation is a legitimate approach to fighting deflation, has broken previously sacrosanct conventions.
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