A deflationary tale _ WSJ10 - Kirk Hofmeister BUS 404 A The Great Deflation In the article Who's Afraid of a Little Deflation by John H Cochrane lists

A deflationary tale _ WSJ10 - Kirk Hofmeister BUS 404 A The...

This preview shows page 1 - 3 out of 3 pages.

Kirk Hofmeister BUS 404 A 11/15/14 The Great Deflation In the article “Who's Afraid of a Little Deflation?” by John H Cochrane lists and explains the troubles associated with deflation. Today there are systems in place to prevent a sudden breakdown in prices as was seen in the Great Depression era “bank panics.” In the modern world the worry is over “near-zero short term interest rates” (Cochrane) if these deflationary symptoms are gradual and intermittent they are advantageous the alternative is undesirable. 4 consequences of deflations are: Sticky wages (1), monetary policy headroom (2), debt payments (3), and deflation spiral (4). 1 Sticky wages involves employers refusing to cut employee wages artificially increasing the price of labor. 2 If the deflation reaches a certain point the Fed loses its grip on the control of interest rates. However there is little concern for this in today’s system. 3 Deflation pushes debtors and governments in debt to default to default, cost will fall but

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture