The Anti Deflation Bias

Philipp Bagus

Acta Oeconomica, 2020, vol. 70, issue 2, 147-161

Abstract: Deflation is widely feared and opposed. This paper provides arguments to explain the anti-deflationary bias. It is argued that governments favour inflation, that the main deflation theories have influenced negatively the public opinion on deflation, and that rent-seeking behaviour and group formation explains why the opposition to deflationary redistribution is stronger than the opposition to inflationary redistribution. Moreover, psychological concepts, such as anchoring, the endowment effect or the availability heuristic have contributed to the fear of deflation by causing a money illusion and a equalisation of deflation and recession.

Keywords: monetary policy; inflation; deflation; money illusion; endowment effect (search for similar items in EconPapers)
JEL-codes: E31 E52 E70 G40 (search for similar items in EconPapers)
Date: 2020
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