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Deflation and Monetary Policy in a Historical Perspective: Remembering the Past or Being Condemned to Repeat It?

Michael Bordo () and Andrew Filardo

No 10833, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What does the historical record tell us about how to conduct monetary policy in a deflationary environment? We present a broad cross-country historical study of deflation over the past two centuries in order to shed light on current policy challenges. We first review the theoretical literature on deflation. We then characterize deflation by distinguishing among the "good, the bad and the ugly" ones - considering both empirical determinants and historical narratives of each type. Emphasis is put on the linkages between the current inflation environment and that of the gold standard period. Particular attention is also put on what the historical record reveals about policies to escape undesirable deflation. In this regard we develop a policy typology based on the relative merits of interest rate and monetary instruments in combating different types of inflation/deflation behavior.

JEL-codes: E31 N10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2004-10
Note: DAE ME
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Published as Bordo, Michael and Andrew Filardo. "Deflation And Monetary Policy In A Historical Perspective: Remembering The Past Or Being Condemned To Repeat It?," Economic Policy, 2005, v20(44,Oct), 799-844.

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