Suchergebnisse

A traditional criticism of currency boards is that they impart a deflationary bias to growing economies. Three factors, however, may inhibit the bias: increases in the velocity of money; increases in the monetary base, which under a currency board occur only through balance‐of‐payments surpluses; and increases in the money multiplier. This article investigates each of the factors in Fiji, Ghana, Jamaica and Malaya over various periods near the end of the colonial era. Except in Malaya, where the money multiplier declined, all helped prevent deflationary outcomes. In broad terms, growth in the monetary base was the most important.

Since the 2001 recession, average core inflation has been below the Federal Reserve's 2% target. This deflationary bias is a predictable consequence of a low nominal interest rates environment. When monetary policy faces the risk of encountering the zero lower bound, in.ation tends to remain persistently below the central bank's target, even if monetary policy is currently not constrained. The deflationary bias increases if macroeconomic uncertainty rises or the natural real interest rate falls. An asymmetric rule according to which the central bank accepts longer periods of in.ation above target corrects the bias and brings inflation back on target. Adopting this asymmetric rule improves welfare and reduces the risk of self-fulfilling deflationary spirals.

There exists a deflationary bias in the contemporary international economy, and this has significant domestic distributional consequences for all states in the system. After investigating its sources, I consider the consequences of and possible solutions to this bias. I review the modern debate over inflation and macroeconomic policy and argue that some small but positive rate of inflation is necessary to achieve optimal economic growth. This is demonstrated to be consistent with most otherwise competing schools of economic thought, such as Keynesianism and monetarism. However, public dissatisfaction with the inflation of the 1970s, coupled with the rise of conservative governments (and new economic theories), allowed highly disinflationary structural and institutional changes to take place without sufficient attention to political consequences. Those changes privilege sectors in society willing to sacrifice some economic growth to assure very low levels of inflation. International financial deregulation reinforces a nominally apolitical anti-inflation coalition by limiting macroeconomic policy autonomy, which reduces the viability of relatively expansionary policies, while at the same time helping to sustain the view that such measures are inherently flawed. Greater sensitivity to the distributional consequences of inflation, and reform in the international financial system, such as the introduction of a Tobin tax, could mitigate the existing deflationary bias.