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Public Policy Brief No. 74 | November 2003

Understanding Deflation

Treating the Disease, Not the Symptoms

Most recent discussions of deflation seem to overlook the main dangers posed by a deflationary economy and appear to offer superficial solutions. In this brief, the authors argue that, barring drastic changes in asset and output prices, deflation itself is not the main problem, but rather the recessionary conditions that sometimes give rise to deflation. Whether or not prices are falling, the proper remedy for a recession is the Keynesian one: government deficit spending, used to finance useful programs and tax cuts. These measures will reduce unemployment, increase growth, and relieve deflationary pressures.


Publication Highlight

Book Series
Financial Regulation in the European Union
Edited by Rainer Kattel, Jan Kregel, and Mario Tonveronachi

November 2015

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