Deflation, Recession and Slowing Growth: Finding the Empirical Links

Federico Guerrero and Elliott Parker

The IUP Journal of Monetary Economics, 2006, vol. IV, issue 1, 37 - 49

Abstract: Does price deflation cause recession? Though deflation has become a matter of concern for the Federal Reserve, recent studies suggest that the historical and causal record is mixed. In this article, the authors use historical data for the output and price level of the United States of America, and find that a simple Granger causality approach confirms the doubts about the effect. A closer look, however, shows that while deflation alone may not cause recession, but when combined with recession, it may cause lower subsequent growth. Although interaction can lead to a downward spiral of output and prices, the authors find that they dissipate with time.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjmo:v:04:y:2006:i:1:p:37-49

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