POTENTIAL FOR DEFLATION IN THE ECONOMY

RESPONDING TO THE POTENTIAL FOR DEFLATION IN THE ECONOMY: UNORTHODOX POLICY CONSIDERATIONS

When the powerful Japanese economy began to experience serious problems about a decade ago, many explanations were offered; however, little serious consideration was given to deflation in the economy (Shiratsuka 59). In 2003, however, deflation is recognized as a serious impediment to any degree of substantial recovery in the Japanese economy (Hess 178). When the United States economy entered a downward spiral in 2001, many explanations were offered, but few analysts mentioned deflation as a cause (Board of Governors, Federal Reserve System 1). Over the past two years, however, influential economists have begun musing about the potential of deflation as a causal factor in the sluggish United States economy (Miller 94). This research examines some of the implications of the presence of deflation in an economy, as well as some of the unorthodox policy prescriptions suggested for dealing with the presence of deflation in the economy.

Implications of Deflation for an Economy

For almost the entire period since the end of the Second World War, the primary focus of central bankers in the developed Western economies has been on what they refer to a the control of inflation. Most people understand the term "control of inflation" to mean the elimination of inflation. For central bankers, however, the term "control of inflation" means to manage inflation, as opposed to eliminati

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Category: Economics - P