Deflation is defined as a drop in the general level of pricing for goods and services. For the United States deflation could seem like a foreign concept after investors have been conditioned to worry about the effect of inflation over the past decade. In this article it says that if prices are falling too far for too long, consumers could delay purchases in the hope of getting a better deal later and businesses may be less likely to produce products that could be worth less by the day. The ECB is implementing a Quantitative Easing program that involves the purchase of at least 1 trillion dollars worth of bonds from eurozone institutions through September 2016. There are also many dangers that come along with this quantitative easing program. It could cause a rise in inflation which results in the increased prices of products and goods which result in less disposable income for consumers due to increased prices. Monetary policy should focus to reach specific levels that reach a stable middle ground.
article: http://www.businessinsider.com/central-bankers-taming-deflation-2015-2
1 comment:
Deflation is bad as it is contractionary. A stable level of price increases is the best for any economy. Like you said, since people wait for prices to drop even further, this reduces spending in the economy. QE is a good move for europe, but I’m very curious to see if it’s as advantageous to the Eurozone as it was to the U.S.
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