Deflation and Zero Interest Rates: Underlying Causes, Implications for Economic Policies and Consequences for the Financial Sector

Patrick Artus Chef économiste, Natixis, groupe BPCE ; professeur associé, Université Paris 1 Panthéon-Sorbonne. Contact : patrick.artus@natixis.com.


This article first describes the fundamental causes of a deflation: a situation of excess of supply of goods and services which cannot be corrected anymore by the reduction in real interest rates. It shows afterwards that, in a deflation, the economic policies which have positive effects in normal circumstances become dangerous. It examines finally the effects on the macro-financial equilibrium of the situation of interest rates at the zero bound limit.


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