Rodney Tyers and
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Yixiao Zhou: School of Economics and Finance, Curtin Business School, Curtin University
No 18-01, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics
Concern about “lost inflation” has been heightened recently by the apparent inability of central banks in the largest democracies, a decade beyond the GFC, to restore their “safe” CPI inflation ranges. This paper examines the deflationary forces against which monetary policy is now aligned, namely migration, the race to the bottom in capital taxation, and biased technical change, and assesses the consequences looking forward. While inflation rates have edged lower over the past two decades the most important change has been declines in long maturity yields, initially driven by strong growth in high-saving Asia and by redistribution in the advanced economies to high-saving households, and bolstered subsequently by return pessimism due to low growth in measured productivity. Ironically, today’s low rates also stem from conventional monetary policy failure, expanded central bank balance sheets and the resulting global “bond bubble”. Future monetary policy effectiveness as deflationary forces continue will depend in the advanced economies on government interventions to address underlying inequality and financial market “normalisation”.
Keywords: Inflation; productivity; automation; income distribution; tax; transfers; general equilibrium analysis (search for similar items in EconPapers)
JEL-codes: D33 E52 J11 O33 (search for similar items in EconPapers)
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