Moderate Inflation and the Deflation-Depression Link

Benhabib, Jess; Spiegel, Mark M.

doi:10.24148/wp2006-32

Cited by 10 publications

(15 citation statements)

References 7 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In a previous version of the paper (Benhabib and Spiegel 2006), we examine the robustness of our results to conditioning for inflation volatility. It has been argued (e.g., Barro 1976, Judson and Orphanides 1999) that inflation volatility is the main cause of low growth during high‐inflation episodes.…”

mentioning

confidence: 97%

See 1 more Smart Citation

Moderate Inflation and the Deflation–Depression Link

Benhabib¹,

Spiegel²

2009

J of Money Credit Banking

Self Cite

View full text Add to dashboard Cite

Recent research has concluded that the historical evidence only provides weak support for the contention that deflation episodes are harmful to economic growth. In this paper, we revisit this relationship by allowing for inflation and growth to have a nonlinear specification dependent on inflation levels. In particular, we allow for the possibility that high inflation is negatively correlated with growth, while a positive relationship exists over the range of negative to moderate inflation. Our results confirm a positive relationship between inflation and growth at moderate inflation levels, and support the contention that the relationship between inflation and growth is nonlinear over the entire sample range. Copyright (c) 2009 The Ohio State University.

show abstract

mentioning

confidence: 97%

“…6 6 In a previous version of the paper (Benhabib and Spiegel 2006), we examined the entire Post‐Bretton Woods era, from 1970 through 2004 as our final subsample. We substituted the shorter Great Moderation at the suggestion of a referee based on the consideration that this shorter period exhibited more homogeneity.…”

mentioning

confidence: 99%

Moderate Inflation and the Deflation–Depression Link

Benhabib¹,

Spiegel²

2009

J of Money Credit Banking

Self Cite

View full text Add to dashboard Cite

show abstract

“…This fits well with Morana (2005, p. 1349) who surveyed Japan's economic growth and inflation for the period 1995-2003 concluded: "In fact, deflation does not seem to have exercised a significant negative impact on real economic activity" (p. 1349) and suggested that the deflationary pressures may have to be worse than those experienced in Japan, in order to exercise negative influence on the real economic growth. Benhabib and Spiegel (2009) found an inverted U-shaped relationship between inflation and real growth, with peak growth rates found at moderate levels of inflation. Banerjee and Mehrotra (2018) found a U-shaped relationship between current deflation/inflation and forecast uncertainty, which may have macroeconomic implications.…”

Section: Real Growthmentioning

confidence: 94%

Deflation and Stock Prices

Clemens¹

2019

View full text Add to dashboard Cite

While the literature on inflation and stock prices is plentiful, there is little literature on deflation and stock prices. This paper explores the empirical data and makes a theoretical analysis of the likely impact on stock prices when expectations change from inflation to deflation. Deflation has a bad name among some economists and most investors. However, from a stock market perspective, deflations' bad name may not be well-deserved. Several observations support this: 1) The 1930s was a statistical outlier and not representative for a deflationary period and deflation does not seem to create recessions, causality goes the other way; 2) real stock returns are positive and around average in the periods leading up to and following the onset of deflation; 3) when moving from low inflation to mild deflation, P/E ratios are virtually unchanged; and 4) peak P/E ratios seem to be reached at inflation rates close to zero. The author proposes three possible explanations for the seemingly disconnect between the empirical data and the "default" ex ante belief of most economists and investors: availability heurist, deflation illusion, and tax related issues in connection with the tax hypothesis.

show abstract

“…A second key component is the study by Benhabib and Spiegel (). They consider the possibility that the relationship might be nonlinear: positive at low or moderate inflation rates (or in deflations) but turning negative at high inflation rates, to form an inverted U‐shape.…”

Section: Research Backgroundmentioning

confidence: 99%

Interwar Inflation, Unexpected Inflation, and Output Growth

Dorval¹,

Smith²

2015

J of Money Credit Banking

View full text Add to dashboard Cite

Interwar macroeconomic history is a natural place to look for evidence on the correlation between output growth and inflation or unexpected inflation. We apply time‐series methods to measure unexpected inflation for more than 20 countries using both retail and wholesale prices. There is a significant, positive correlation between output growth and inflation for the entire period. There is little evidence that this correlation is caused by an underlying role for unexpected inflation. For wholesale price inflation in particular, the output declines associated with deflations were larger than the output increases associated with inflations of the same scale.

show abstract

Moderate Inflation and the Deflation-Depression Link

Cited by 10 publications

References 7 publications

Moderate Inflation and the Deflation–Depression Link

Moderate Inflation and the Deflation–Depression Link

Deflation and Stock Prices

Interwar Inflation, Unexpected Inflation, and Output Growth

Contact Info

Product

Resources

About