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Deflation and its Link to Recession: Historical Evidence
Kudláčková, Daniela ; Jílek, Josef (advisor) ; Pfeifer, Lukáš (referee)
Deflation, which has recently represented significant source of concern, is by many economists perceived to be an unfavorable phenomenon in the economy. The aim of this paper is to identify the possible link between deflation and economic downturn based on the comprehensive view. The emphasis is put on the analysis of historical episodes of deflation over the past two centuries in order to shed light on causes and impacts of deflation during the periods. The paper does not neglect the comparison of theoretical approaches. The results of the analysis, supported by empirical studies, imply that the relationship between deflation and recession is complex. Although the paper does not confirm the existence of a general link between deflation and recession, it reveals that recession often leads to deflation (especially in a low inflation environment), but deflation does not usually result in recession. In many cases deflation remains to be a symptom of economic problems, not their cause.
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Deflation: the Austrian School Perspective
Řepík, Martin ; Havel, Jan (advisor) ; Chytil, Zdeněk (referee)
Deflation, today understood mainly as a decrease in price level, is in the eyes of the mainstream economists the threat and danger of the economic development. This view is based on the experience from the Economic Crisis between 1929 and 1933 and later development in Japan. Therefore, the price stability is nowadays comprehended as a non decline in price index; monetary policy actually states the sustainable increase as a goal. The Austrian School of Economics uses the original definition of the words inflation and deflation and defines them as the increase and decrease of money supply. Modern interpretation of these terms means for them a dangerous misunderstanding whose result is misapprehension of causal connections between individual phenomena. This leads not only to incorrect conclusions but, above all, to disruption of the economic system, price and production structure, and development of economic cycles caused by artificial increase in money supply, which brings profit to certain groups.
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Common and different aspects of monetary policy in Austria and Czechoslovakia in the years 1918-1929
Middeldorp, Markéta ; Doležalová, Antonie (advisor) ; Koderová, Jitka (referee)
The main thesis of this paper is to identify and describe the common and different aspects of the monetary policies of Austria and Czechoslovakia in the years 1918-1929, as one of the possible determinants of post-war economic development of both countries. As the successor states to the Austro-Hungarian monarchy both countries faced the same currency problems, although Czechoslovakia was on the winning side and Austria on the losing side, which determined the economic conditions in both countries in their beginnings. To address monetary issues each country had a different approach, while for example Austria experienced post-war hyperinflation Czechoslovakia executed the first wave of deflation. Despite the successes of the Czechoslovak economy in the period under review, only by comparing them to Austria showed that against all odds the economic performance of Austria was better. One of the possible causes was a different implementation of monetary policy, which is the central theme of this paper. Although the two countries are once again "reunited" in the European Union, their mutual relations are still impeded by specific problems whose origins can also be traced to the interwar period.
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Forecast of deflationary forces in economy and impact on asset values
Kaška, Jan ; Mařík, Miloš (advisor) ; Krabec, Tomáš (referee)
In current valuation and economics disciplines, it is a commonly held belief that financial crisis is over and a big threat to world economic system is inflation. While many assumptions of these claims are of certain significance indeed, this thesis proves a non-trivial chance of outright deflation. Author of this work also shows that attempts of governments and central banks aimed at avoiding deflationary scenarios ultimately cause slower growth and elevated variance in economic activity. Due to existence of such causality, a new variable "tau" entering into CAPM model's risk premium was developed as the original model had previously not captured for impacts of monetary and government policies. In order to quantify a probability and strength of deflationary forces in developed world, three distinct approaches were utilized -- quantitative assessment, historical comparisons, and a pure economic theory based reasoning. Value of variable tau was determined by regressing relationship between implied risk premium and changes in monetary policy while testing for different time lags. Results of the work point to a 10-20% chance of deflation in developed world. Extremely loose monetary policy worldwide than warrants augmenting additional 1-2% risk premium to current implied risk premium of US stock market. Although newly defined models would certainly need more work and refining, author believes that the augmented CAPM version does a good job capturing the "irrational exuberance" mentality attached to policies of major central banks around the world. The three year lead of model-based risk premium compared to the implied one is perceived as one more contribution to current valuation process and understanding of risk.
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The Problem of Deflation in the Japanese Context
Kudláčková, Daniela ; Dočkal, Dalibor (advisor) ; Ježek, Tomáš (referee)
In the late 1990s deflation returned to the centre of interest of economists. One of the reasons was the recent japanese experience from the 1990s when deflation followed the long-lasting recession. The aim of the work is to find out if deflation was the main reason of the japanese economic recession or if it was only a symptom of some deeper problems. In the first part the paper presents possible definitions of deflation and compares theoretical approaches to this phenomenon -- the mainstream and austrian approaches. The second part focuses directly on the japanese economy. First, it explains historical and economic circumstances which are necessary for correct evaluation of the character of japanese deflation. Next, it offers an analysis of the deflation per se, tries to investigate its character and causes. On the basis of the deep knowledge of the development of japanese economy and data analysis, the paper considers deflation more likely to be a symptom of deeper economic problems than one of the main reasons of japanese recession.
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Economics and deflation
Švec, Marek ; Písař, Pavel (advisor) ; Štěpánek, Pavel (referee)
This thesis deals with deflation. Today the importance of inflation and deflation is creating a false impression about the true meaning of those two economic concepts. The objective of this work is to summarize the concept of deflation and a detailed taxonomy of the Austrian School view contrasted against a traditional view of mainstream economics and the widespread view that deflation is one of the most serious disorders, such as the economy may suffer. But are falling prices really so bad? The theoretical part mainly demonstrates by the value-neutral analysis that the long-declining prices in most cases are beneficial. In the end, these theoretical knowledge is applied in the case study, which analyzes in detail the Japanese economy, for which deflation became synonymous. Findings will be compared with the monetary policies conducted by the Bank of Japan, so I wanted to demonstrate that the persistent economic downturn in Japan is not because of price deflation, but as the result of aggressive fiscal and monetary policies to halt the decline in general level of prices of goods and services.
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The Phenomenon of Deflation - Is It Really a Negative Effect?
Braunová, Veronika ; Munzi, Tomáš (advisor) ; Potužák, Pavel (referee)
The bachelor thesis investigates two divergences of opinion on the problem of deflation and tends to the side of Austrian economic school which deals with original conception. Deflation according to them means drastic decline of money supply or volume of expenditures in the economy. By disagreement with the modern concept of deflation are displaced the most famous myths connected with deflation (for example, increase in unemployment rate). Deflation is divided in several types, whereas in negative sense can be comprehended only one of them. Next is proved the inefficiency of implementing antideflationary policy which should fight against the deflation and restore inflation in economy. On the basis of research on deflation during The Great Depression was found to be deflation only a consequence of the crisis, not causation. As the causation was determined regulation of market during the period of the presidency of Hoover and Roosevelt. In conclusion new knowledge was used for the explanation of current financial crisis from which was indicted government and central banks.
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Price Deflation
Thorovský, Jan ; Šíma, Josef (advisor) ; Mládek, Josef (referee)
The thesis deals with a monetary phenomenon of price deflation. In modern monetary theories, causes are sometimes confused with consequences. As to price deflation, consequences of causes of this phenomenon are often attributed to it while it is not a cause but a mere consequence. That's why we have identified causes of price deflation and their true consequences in the thesis. According to quantity theory of money, there are three main sources of price deflation as follows: decline in money supply, decline in velocity of circulation of money, and productivity growth. These causes are analyzed in detail, each of them in a single chapter. Price deflation is often associated with depressions while in some cases it might be a mere consequence of depression, not a cause. On the other hand, price deflation might also be a consequence of productivity growth (unless accommodated by increase in money supply) which makes it perfectly compatible with a healthy and growing economy.
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Historie bankovnictví na českém území
Marková, Lenka ; Kollár, Miroslav (advisor) ; Havel, Jan (referee)
Předmětem mé bakalářské práce je diskuse nad škodlivostí monetárního jevu deflace. Na začátku práce objasňuji, jak se bankovnictví vyvíjelo od počátku vzniku peněz, přičemž důraz kladu na bankovní systém a monetární politiku Rakousko-Uherska a hlavně Československa, které se s deflací ve 20. a 30. letech 20. století potýkalo a jak zasáhly takové autority tehdejší republiky jakými byli Alois Rašín a Karel Engliš. V další části práce uvádím, jak se na deflaci dívá ekonomie hlavního proudu a proti ní rakouská škola i po-friedmanovská větev ekonomů. Nemohla bych opomenout ani názor prof. Vencovského, který se touto problematikou detailně zabýval. V závěru práce si skromně dovoluji shrnout problematiku deflace a její vliv na ekonomiku, zda je deflace ?zdravím?, či ?nemocí? ekonomiky.
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Analýza Velké hospodářské krize v Československu
Kučková, Lenka ; Stellner, František (advisor) ; Jakubec, Ivan (referee)
Tato diplomová práce se zabývá Velkou hospodářskou krizí, která proběhla v letech 1929 až 1933/4. Světově proslulá deprese se projevila již v roce 1929 a prohlubovala se až do roku 1933, ve kterém dosáhla nejnižšího bodu v hospodářském cyklu. Jejími charakteristickými rysy byla deflační tendence, nezaměstnanost, snižování reálného produktu. Velká část československého obyvatelstva trpěla vysokou nezaměstnaností, ti šťastnější polozaměstnaností a nemožností si najít práci novou, zejména zemědělskému dělnictvu se snižovaly reálné mzdy a navíc zemědělské výrobky prodávali za stále se snižující ceny, v důsledku čehož žili na pokraji chudoby. Nepříznivá situace byla i v oblasti podnikání, zvyšovala se úroková míra a v průmyslovém odvětví docházelo zejména ke snižování množství vyrobené produkce. Krize zasáhla rovněž komerční banky a nepříznivý vývoj zaznamenávaly nejrůznější makroekonomické ukazatele. Práce obsahuje tři kapitoly, první kapitola popisuje průběh krize v Československu ve sféře zemědělské, průmyslové, situaci komerčních bank a monetární politiku, krizovou situaci v zaměstnanosti a průběh deprese v národním hospodářství jako celku. Druhá kapitola popisuje a analyzuje způsoby léčby krize a jejich důsledky. Tato kapitola obsahuje některé navrhované neuskutečněné způsoby léčby deprese a obsahuje jejich porovnání. Třetí kapitola je věnována pohledům a teoriím ekonomů.
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