American - Public | December 13, 1953 -
After a long period in which the desired direction for inflation was always downward, the industrialized world's central banks must today try to avoid major changes in the inflation rate in either direction.
Ben Bernanke
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No one will lend at a negative interest rate; potential creditors will simply choose to hold cash, which pays zero nominal interest.
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Following an extended boom in housing, the demand for homes began to weaken in mid-2005. By the middle of 2006, sales of both new and existing homes had fallen about 15 percent below their peak levels. Homebuilders responded to the fall in demand by sharply curtailing construction.
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To be sure, faster growth in nominal labor compensation does not necessarily portend higher inflation.
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Since World War II, inflation - the apparently inexorable rise in the prices of goods and services - has been the bane of central bankers.
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Deflation is defined as a general decline in prices, with emphasis on the word 'general.'
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Sector-specific price declines, uncomfortable as they may be for producers in that sector, are generally not a problem for the economy as a whole and do not constitute deflation.
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The failure of Lehman Brothers demonstrated that liquidity provision by the Federal Reserve would not be sufficient to stop the crisis; substantial fiscal resources were necessary.
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To be sure, the provision of liquidity alone can by no means solve the problems of credit risk and credit losses; but it can reduce liquidity premiums, help restore the confidence of investors, and thus promote stability.
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The role of liquidity in systemic events provides yet another reason why, in the future, a more system wide or macroprudential approach to regulation is needed.
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In any given month, a large number of workers are being hired or are leaving their current jobs, illustrating the dynamism of the U.S. labor market.
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The children of the unemployed achieve less in school and appear to have reduced long-term earnings prospects.
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