Asset Deflation and Financial Fragility

Louise Davidson

Chapter 18 in Uncertainty, International Money, Employment and Theory, 1999, pp 232-245 from Palgrave Macmillan

Abstract: Abstract The purpose of this paper is quite modest. The theoretical argument starts by accepting Keynes’s fundamental axiom that money is never neutral in an entrepreneurial economy.1 It is then possible to trace out why, if all prices are flexible, falling prices and especially an asset price deflation can have a devastating impact on the financial system and permanently lower employment and real economic growth. (If, on the other hand, money was neutral, then falling prices would be the process through which the economic system either maintains or restores full employment prosperity.)

Keywords: Nominal Wage; Flexible Exchange Rate; Money Income; Real Capital; Money Wage (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1007/978-1-349-14991-9_18

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