Some Empirical Evidence on Deflation
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After I posted this letter to the Wall Street Journal, GMU Econ alum Bob Subrick (who now teaches at James Madison University) alerted me to Andrew Atkeson’s and Patrick Kehoe’s paper titled “Deflation and Depression: Is There an Empirical Link?,” which appears on pages 99-103 of the May 2004 issue of the American Economic Review. I was unaware of this paper until Bob brought it to my attention. Unfortunately, for most of you this paper is behind a paywall. The following three quotations from the paper, however, nicely summarize the authors’ key empirical finding:
Our main finding is that the only episode in which there is evidence of a link between deflation and depression is the Great Depression (1929-1934). We find virtually no evidence of such a link in any other period.
…..
The data suggest that deflation is not closely related to depression. A broad historical look finds many more periods of deflation with reasonable growth than with depression, and many more periods of depression with inflation than with deflation. Overall, the data show virtually
no link between deflation and depression.…..
The bar has thus been raised for those who claim that deflation and depression are closely linked.
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Source: https://cafehayek.com/2022/09/some-empirical-evidence-on-deflation.html
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