Deflation: Current and historical perspectives

Cover......Page 1
Half-title......Page 3
Series title......Page 5
Title......Page 7
Copyright......Page 8
Dedication......Page 9
Contents......Page 11
Tables and Figures......Page 15
Contributors......Page 21
Preface......Page 23
INTRODUCTION......Page 25
FEARS OF DEFLATION THEN AND NOW......Page 27
WHAT IS DEFLATION ANYWAY? HISTORICAL AND INTERNATIONAL PERSPECTIVES......Page 31
HISTORICAL EVIDENCE ON DEFLATIONARY EPISODES......Page 34
DEFLATION TODAY IN CHINA AND JAPAN......Page 40
OVERVIEW OF THE CONTRIBUTIONS TO DEFLATION......Page 44
Part 1: Fears of Deflation and the Role of Monetary Policy......Page 45
Part 2: Deflation and Asset Prices......Page 47
Part 3: International Perspectives on Deflation......Page 48
Part 4: Stock Market Adjustments to Deflation......Page 49
PART ONE FEARS OF DEFLATION AND THE ROLE OF MONETARY POLICY......Page 53
SEPARATE REGIONS WITH SEPARATE BANKING SYSTEMS......Page 55
THE ROLE OF DEFLATION......Page 57
SILENT RUNS AND NOISY RUNS......Page 62
THE BANKING HOLIDAYS......Page 74
REGIONAL ASPECTS OF THE CONFLICT OVER MONETARY POLICY......Page 78
THE BANKING CRISES OF THE EARLY 1930s FROM A REGIONAL PERSPECTIVE......Page 80
INTRODUCTION......Page 85
THE BRITISH ECONOMY......Page 86
HYPOTHESES......Page 89
PRICE EXPECTATIONS......Page 92
PROXYING THE KEYNES AND FISHER EFFECTS......Page 94
PRICE LEVEL AND PRICE LEVEL CHANGE EXPECTATIONS......Page 96
REAL INTEREST RATES......Page 98
EXPECTATIONS AND THE BOND MARKET......Page 101
BOND RATE SPREADS......Page 104
INTERTEMPORAL SUBSTITUTION......Page 107
CONCLUSIONS......Page 108
APPENDIX 1. SOURCES AND DATA......Page 110
Level of GNP Deflator......Page 111
Rate of Inflation......Page 112
APPENDIX 3. A NOTE ON THE COURSE OF SOME PRICE SERIES......Page 113
INTRODUCTION......Page 115
Announcements and Actions by Policy Makers......Page 117
How Much Deflation Was Required to Restore the Old Gold Parity?......Page 120
Beliefs and Advice of Economists......Page 121
Beliefs and Actions of Wage Setters......Page 123
The Role of Expected Deflation......Page 129
Background......Page 136
Why Was Price Stabilization Adopted in 1931?......Page 138
Announcements and Actions by Policy Makers......Page 139
Beliefs and Advice of Economists......Page 142
Beliefs and Actions of Wage Setters......Page 143
Impact of Beliefs and Actions on the Outcome......Page 147
CONCLUSIONS......Page 149
PART TWO DEFLATION AND ASSET PRICES......Page 153
INTRODUCTION......Page 155
The United States, 1929–1933......Page 158
Japan, 1986–1995......Page 161
Criterion......Page 163
Boom–Busts in the OECD, 1970–2001......Page 164
Ancillary Variables......Page 170
THEORY......Page 173
The Model......Page 176
Monetary Policy and Financial Fragility......Page 177
Reactive and Proactive Monetary Policies......Page 178
A Nonconventional, Nonlinear Taylor Rule......Page 179
Irrational Exuberance......Page 182
CONCLUSIONS AND POLICY IMPLICATIONS......Page 184
APPENDIX......Page 185
INTRODUCTION......Page 190
DEFLATION AND FINANCIAL FRAGILITY: THE HISTORICAL RECORD......Page 194
Theory......Page 198
Empirical Evidence......Page 200
A Simple Impulse Response Exercise......Page 202
A ROLE FOR MONETARY POLICY?......Page 206
CONCLUSIONS......Page 210
APPENDIX. DEFINITIONS AND SOURCES OF PROPERTY PRICES DATA......Page 211
PART THREE INTERNATIONAL PERSPECTIVES ON DEFLATION......Page 213
INTRODUCTION......Page 215
Historical Context......Page 219
Theoretical Perspective......Page 223
EMPIRICAL ANALYSIS – UNITED STATES......Page 227
EMPIRICAL ANALYSIS – CANADA......Page 232
DISCUSSION OF RESULTS AND CONCLUSION......Page 236
APPENDIX......Page 240
INTRODUCTION......Page 242
THE STRONG LIRA POLICY......Page 244
Why Quota 90?......Page 247
Why the Collapse of Quota 90?......Page 249
THE DEFLATION YEARS......Page 251
Money Growth Determinants......Page 253
LENDING OF LAST RESORT......Page 256
THE LINK BETWEEN DEFLATION AND DEPRESSION......Page 260
THE THIRTIES VS. THE NINETIES......Page 261
CONCLUSIONS......Page 263
INTRODUCTION......Page 265
Background: Recession, Deflation, and Banking Problems......Page 268
Interest Rates and Credit in a Deflationary Environment......Page 270
CREDIT CRUNCH OR LIQUIDITY TRAP?......Page 273
Summary Evidence: Observational Equivalence?......Page 274
Statistical Evidence......Page 276
WHAT HAS HELD UP THE JAPANESE ECONOMY?......Page 282
Fiscal Policy......Page 283
BANKING CRISIS......Page 284
Monetary Policy......Page 285
External Environment and Exchange Rate Policy......Page 286
EFFORTS BY THE BANK OF JAPAN TO STOP DEFLATION AND INFLATION TARGETING......Page 287
An Inflation Target for the Bank of Japan?......Page 288
Would Inflation Targeting Have Stopped Japan’s Deflation?......Page 289
CONCLUSIONS......Page 291
PART FOUR STOCK MARKET ADJUSTMENTS TO DEFLATION......Page 293
INTRODUCTION......Page 295
THE EFFECT OF DEFLATION ON THE U.S. FINANCIAL MARKETS......Page 299
London......Page 304
Paris......Page 310
Berlin......Page 313
Summary......Page 315
ASSESSMENT......Page 317
CONCLUSION......Page 320
INTRODUCTION......Page 322
DATA AND HISTORICAL BACKDROP: STOCK MARKET PERFORMANCE AND POLITICS IN GERMANY, 1913–1926......Page 323
The Present Value Model and Asset Price Bubbles......Page 330
Structural Booms and Slumps......Page 332
ECONOMETRIC TESTING: COINTEGRATION AND THRESHOLD ADJUSTMENT......Page 333
MTAR Estimates of the Log Dividend-Price Ratio......Page 336
Evidence for Phelps’ Booms and Slumps Hypothesis......Page 338
SUMMARY AND CONCLUSIONS......Page 340
INTRODUCTION......Page 342
EMPIRICAL ANALYSIS......Page 345
CONCLUDING REMARKS......Page 353
References......Page 355
Index......Page 377