Post
Topic
Board Economics
Re: Is deflation truly that bad for an economy?
by
tee-rex
on 18/04/2015, 18:55:06 UTC
Why in the first place you assume that in real life you will have the real interest rate the same for both inflation and deflation? In 10% deflation the real interest rate will necessarily be equal to or more than 10% (by definition, since nominal interest rate is always above 0). But this in no case means that in 10% inflation it should be the same 10% (which would amount to 20% nominal interest rate, if rates are taken as percentage points). I obviously cannot accept your allegation as being relevant to reality.

Because we are investigating the effect of inflation and deflation ALL ELSE EQUAL. 

I think some reality check is urgently needed. You insist that deflation mirrors inflation, and I take crazy numbers for an example. Okay, you have 3% inflation and a real interest rate of 2%, not something that you would call crazy, right? What will the real interest rate then be for the deflation of the same 3% according to your logic?