Post-Crisis Development: Inflation vs Deflation

DOI: 10.20542/0131-2227-2017-61-1-5-16

V. Varnavskii (,
Institute of Control Sciences, Russian Academy of Sciences, 65, Profsoyuznaya Str., Moscow, 117997, Russian Federation; 
Primakov National Research Institute of World Economy and International Relations, Russian Academy of Sciences (IMEMO), 23, Profsoyuznaya Str., Moscow, 117997, Russian Federation 

Abstract. The article considers post-2008 inflation and deflation processes in the world economy and some industrial countries. Basing on the analysis of the concept of inflation/deflation and the substance of these theoretical categories, the author gives his own vision of a place the inflation concept occupies in the modern economic theory. It is pointed out that various approaches to the definition of inflation, deflation, core inflation, reflation and other terms appeared recently. The author focuses on the estimates of key macroeconomic indicators, primarily consumer price index (PCI) and GDP deflator, published by the governmental statistical agencies and international organizations while analyzing historical data on economic growth and price indexes. Also, the article discusses points of view on the potential impact of inflation on economic growth, including model calculations on the basis of VAR and DSGE models. It is shown that moderate and stable inflation rates promote the development process and hence economic growth. Despite divergent post-Great Recession fears about negative inflation trends and deflationary pressures, the world economy follows a path of modest growth and low inflation. The author agrees with those economists who believe that ongoing reflationary forces and deflationary pressures will continue to largely offset each other, keeping global growth at a relatively low level. Special attention is paid to Japan where low inflation and deflation occurred from the mid 1990s. It is stressed that for an unusually long time – more than two decades – this country operates under unique economic conditions of persistent stagnation and low inflation/deflation. Anyway, despite the existing problems in economic development Japan remains one of the most productive economy and the largest markets in the world. The author’s conclusion is as follows: under certain conditions Japan’s economic model may become the norm of “new equilibrium” for other developed countries.

Keywords: inflation, deflation, deflationary pressures, deflationary spiral, economic growth, GDP, VAR-models, DSGE-models, Japan’s “lost two decades” 


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For citation:
Varnavskii V. Post-Crisis Development: Inflation vs Deflation. World Eonomy and International Relations, 2017, vol. 61, no. 1, pp. 5-16.

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