He argues that some of the more alarmist commentary about the threat of global deflation is overdone. Although Japan is already experiencing falling prices with zero interest rates, it is still a long way from falling into the sort of deflationary spiral that characterised the United States during the Great Depression. And while a sharp contraction in consumer spending would pose a threat to the US recovery, there are good reasons for believing that the US economy is unlikely to follow Japan into deflation. He views low inflation in Germany as, to a large extent, part of a process of regional relative price adjustment in the context of monetary union, rather than as the beginnings of a classic deflationary process.
Published on 25 November 2002
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