Working Paper: NBER ID: w22535
Authors: Guillermo A. Calvo
Abstract: The paper discusses policy relevant models, going from (1) chronic inflation in the 20th century after WWII, to (2) credit sudden stop episodes that got exacerbated in Developed Market economies after the 2008 Lehman crisis, and appear to be associated with chronic deflation. The discussion highlights the importance of expectations and liquidity, and warns about the risks of relegating liquidity to a secondary role, as has been the practice in mainstream macro models prior to the Great Recession.
Keywords: chronic inflation; chronic deflation; liquidity; expectations; macroeconomic policy
JEL Codes: E31; E41; E42; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| chronic inflation (E31) | liquidity issues (G33) |
| liquidity issues (G33) | financial instability (F65) |
| financial instability (F65) | chronic deflation (E31) |
| chronic inflation (E31) | chronic deflation (E31) |
| liquidity shocks (E44) | economic recovery (E65) |
| liquidity shocks (E44) | economic stability (E63) |
| inflationary expectations (E31) | liquidity feedback loop (E44) |