Deflation
in sentence
696 examples of Deflation in a sentence
The Great Depression, which followed the stock market crash of 1929, saw unemployment rise sharply in many countries, accompanied by severe
deflation.
According to Bernanke’s “debt deflation” theory, the collapse in consumer prices was one of the causes of the Great Depression, since
deflation
raised the real value of debts, making it difficult to repay loans.
Once a country eliminated convertibility into gold, it was free to pursue monetary expansion, and
deflation
tended to end.
But Bernanke’s impressive research on the Great Depression does not mean that he can prevent the next recession or depression, for stopping
deflation
hardly solves all problems.
After all, the US went off the gold standard in 1933, and the Fed cut the discount rate to 1.5% in 1934, ending
deflation
(except for minor episodes); but the unemployment rate did not fall consistently below 15% until 1941 and the onset of World War II.
In contrast to the Great Depression, collapsing national output was in recent decades accompanied by accelerating inflation, not
deflation.
The Calvo study thus concludes that Bernanke’s debt
deflation
theory of the Great Depression does not generally apply to the more recent crises.
Almost all developed economies have left recession far behind, and the danger of
deflation
has disappeared.
The Swiss central bank recently adopted this position, and the ECB is worrying about higher inflation, not deflation, in the eurozone.
The announced rate should be substantially positive, they wrote, because if officials tried to get it close to zero, any mistake could result in deflation, which “might endanger the financial system and precipitate an economic contraction.”
While it is right to worry about massive deflation, the historical relationship between
deflation
and recession is not all that strong.
The Return of Fiscal PolicyNEW YORK – Since the global financial crisis of 2008, monetary policy has borne much of the burden of sustaining aggregate demand, boosting growth, and preventing
deflation
in developed economies.
These policies boosted asset prices and economic growth, while preventing
deflation.
While the pendulum has swung from squeezing out excess inflation to avoiding deflation, price stability remains the sine qua non in central banking circles.
One could, of course, argue that the SGP should be scrapped, because austerity makes no sense when the eurozone faces the risk of
deflation.
The Commission must regain political and intellectual leadership and make its choice: either explain why the SGP rules must be followed even now, in the face of deflation, or agree with those who argue that the current environment calls for a fiscal stimulus.
And in the aftermath of the 2008 global financial crisis, the Fed implemented quantitative easing despite protests that it was allowing the US to export
deflation.
In China’s last protracted bout of deflation, from 1998 to 2002, persistent declines in prices were the result of monetary and fiscal tightening that began in 1993, compounded by the lack of exit mechanisms for failed enterprises.
The fact that loss-making enterprises were allowed to churn out cheap products, eroding the profitability of high-quality enterprises (and thus their incentive to invest), prolonged the
deflation.
Nonetheless, China eventually managed to rid itself of
deflation
and return to rapid economic growth.
In fact, if overcapacity is allowed to continue putting downward pressure on prices, China’s economic growth will not stabilize at a rate consistent with its potential; instead, the economy will be pushed into a vicious spiral of debt
deflation.
China should brace itself for a period of deflation, which may be even more protracted than the last one.
The technical lead held by Europe’s traditional trading economies is being eroded, while wage competition is encouraging fears of
deflation.
In order to kick-start progress, ECB President Mario Draghi has proposed a grand policy bargain to European governments: if they implement structural reforms and improve fiscal flexibility, the central bank will expand its balance sheet to boost growth and thwart
deflation.
If the third “arrow” of Abenomics fails to materialize, investors’ risk aversion will rise yet again, hampering efforts to stimulate growth and avoid
deflation.
Today, real growth is subdued and may even be slowing, while inflation is below target in most places, with some economies even facing the risk of
deflation.
Moreover, most wholesale prices around the world remain in outright
deflation.
If they fail to ease monetary policy,
deflation
is around the corner.
But if it resulted from an increase in demand, the value of money will increase, which means
deflation.
At the moment, no country is truly suffering deflation, but that may change as the crisis deepens.
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