Is deflation a trap? Revisiting the Japanese experience
LONDON | By Michael Gavin at Barclays | The recent decline of headline and core inflation in the US and Europe has intensified interest in the economics of deflation, particularly the perceived danger that Europe may be headed for a deflationary episode. Deflation is particularly unsettling for many policymakers and market participants because of the theoretical risk that it may render monetary policy ineffective, creating a ‘liquidity trap’ from which it may be very difficult to escape.