Arnold Kling  

Signs of Deflation

The Monetary Mechanism... Individualism, Institutions, a...

That is how I read Michael Bryan and Brent Meyer.

the sharp drop in the flexible component of the core CPI is another clear indication of the strong disinflationary pressure on retail prices in recent months. Over the past four months, the core flexible CPI has fallen at a 2.6 percent pace, just a shade more than what we saw during the disinflation of 2003.

Disinflation of 2003? That is something to remember. At the time, the economy looked sort of weak in 2003. Now, of course, people think that Greenspan "overheated" the economy at that time. I, of course, don't think monetary policy had much effect either way.

Thanks to Phil Izzo for the pointer.

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CATEGORIES: Macroeconomics

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Dave writes:

"I, of course, don't think monetary policy had much effect either way."

Barry Ritholtz does a nice job explaining how the Fed's low interest rates helped blow the housing bubble, among other factors. When I put together his explanation (the supply side of shady mortgages) along with Kling's regulatory arbitrage story (the demand side for such mortgages), I feel as if I understand the most important causes behind the housing bubble.

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