The purpose of this paper is to develop an analysis of the improbable events of housing market bubbles occurring in a period when US and UK central bankers were responding…
The purpose of this paper is to develop an analysis of the improbable events of housing market bubbles occurring in a period when US and UK central bankers were responding to perceived risks of a new deflation.
The methodology focuses on how the anti-deflation policies implemented by the Federal Reserve and the Bank of England contributed to the housing market bubbles. The central bankers perceived the deflation as a Keynesian short-run deficiency in aggregate demand, triggered by a financial crisis. Indications are that the deflation is in the nature of long-run aggregate-supply-driven trend as explained in Veblen’s theory of “chronic” deflation driven by cost-reducing advances in technology and globalization.
The Keynesian anti-deflation policies of the Federal Reserve and Bank of England failed to counter the deflation risks while contributing to housing market bubbles. Moreover, the policies failed to address the structural problems of unemployment and income inequality associated with long-run aggregate supply deflation.
Effective policies must be based on a correct theoretical understanding of the problems. The chronic nature of the new deflation points to the need for new approaches to deal with the negative income and employment effects that exclude an increasing number from the housing markets.
Empirical studies on household-level inflation inequality have so far only focused on periods with positive inflation rates. However, the major concern on the policy…
Empirical studies on household-level inflation inequality have so far only focused on periods with positive inflation rates. However, the major concern on the policy agenda since the most recent financial crisis has been deflation rather than inflation. This naturally raises the question regarding the effect of deflation on the distribution of real income when households spend their budget on different consumption bundles. This chapter compiles annual household-level inflation rates in Denmark from 1930 to 1935 based on microdata from the Expenditure and Saving Survey of 1931 and price data from the official Retail Price Index. The results indicate that lower-income households faced a larger decline in prices on their consumption of goods and services during the deflation years 1930–1932 than higher-income households did. The deflation thus contributed to narrowing the difference in real incomes between the top and bottom parts of the income distribution during the recession. In the years 1933–1935 with positive inflation rates, the lower-income households experienced higher inflation rates than higher-income households. Over the period 1930–1935 seen as a whole, the price development contributed slightly to reducing real income inequality. The low degree of medium-term persistence of differences in household-specific inflation rates is consistent with previous findings in various time periods from the 1960s to the 2000s without any persistent deflation events. The chapter at hand is the first empirical study of the direct distributional effects of price developments at the household level in a period with persistent deflation.
The purpose of this paper is to show benefits of deflated preconditioned conjugate gradients (CG) in the solution of transient, incompressible, viscous flows coupled with…
The purpose of this paper is to show benefits of deflated preconditioned conjugate gradients (CG) in the solution of transient, incompressible, viscous flows coupled with heat transfer.
This paper presents the implementation of deflated preconditioned CG as the iterative driver for the system of linearized equations for viscous, incompressible flows and heat transfer simulations. The De Sampaio-Coutinho particular form of the Petrov-Galerkin Generalized Least Squares finite element formulation is used in the discretization of the governing equations, leading to symmetric positive definite matrices, allowing the use of the CG solver.
The use of deflation techniques improves the spectral condition number. The authors show in a number of problems of coupled viscous flow and heat transfer that convergence is achieved with a lower number of iterations and smaller time.
This work addressed for the first time the use of deflated CG for the solution of transient analysis of free/forced convection in viscous flows coupled with heat transfer.
The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual…
The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual realities and the future, potential, best possible conditions of general stable equilibrium which both pure and practical reason, exhaustive in the Kantian sense, show as being within the realm of potential realities beyond any doubt. The first classical revolution in economic thinking, included in factor “P” of the equation, conceived the economic and financial problems in terms of a model of ideal conditions of stable equilibrium but neglected the full consideration of the existing, actual conditions. That is the main reason why, in the end, it failed. The second modern revolution, included in factor “A” of the equation, conceived the economic and financial problems in terms of the existing, actual conditions, usually in disequilibrium or unstable equilibrium (in case of stagnation) and neglected the sense of right direction expressed in factor “P” or the realization of general, stable equilibrium. That is the main reason why the modern revolution failed in the past and is failing in front of our eyes in the present. The equation of unified knowledge, perceived as a sui generis synthesis between classical and modern thinking has been applied rigorously and systematically in writing the enclosed American‐British economic, monetary, financial and social stabilization plans. In the final analysis, a new economic philosophy, based on a synthesis between classical and modern thinking, called here the new economics of unified knowledge, is applied to solve the malaise of the twentieth century which resulted from a confusion between thinking in terms of stable equilibrium on the one hand and disequilibrium or unstable equilibrium on the other.
This chapter investigates the nature of the transformation of macroeconomics by focusing on the impact of the Great Depression on economic doctrines. There is no doubt…
This chapter investigates the nature of the transformation of macroeconomics by focusing on the impact of the Great Depression on economic doctrines. There is no doubt that the Great Depression exerted an enormous influence on economic thought, but the exact nature of its impact should be examined more carefully. In this chapter, I examine the transformation from a perspective which emphasizes the interaction between economic ideas and economic events, and the interaction between theory and policy rather than the development of economic theory. More specifically, I examine the evolution of what became known as macroeconomics after the Depression in terms of an ongoing debate among the “stabilizers” and their critics. I further suggest using four perspectives, or schools of thought, as measures to locate the evolution and transformation; the gold standard mentality, liquidationism, the Treasury view, and the real-bills doctrine. By highlighting these four economic ideas, I argue that what happened during the Great Depression was the retreat of the gold standard mentality, the complete demise of liquidationism and the Treasury view, and the strange survival of the real-bills doctrine. Each of those transformations happened not in response to internal debates in the discipline, but in response to government policies and real-world events.
The editorials of the then-new Business Week during the 1929–1933 contraction offered sophisticated Keynesian policy prescriptions: against a laissez-faire response…
The editorials of the then-new Business Week during the 1929–1933 contraction offered sophisticated Keynesian policy prescriptions: against a laissez-faire response, against deflation, against balanced-budget fetishism, for monetary expansion. These editorials, which seem to have been largely forgotten, likely played a considerable role in the dissemination of Keynesian economics in the United States in the 1930s. This chapter reviews the editorials and their congruence with Keynes’s writings. The magazine’s archives, including surveys of their readers, suggest that the editorials were among the most read and most valued parts of the magazine. The magazine cultivated an elite executive readership at that time, so the editorials may well have been important in gaining business support for Keynesian policies in the early New Deal.
Despite some hotspots, deflation risks prevail over high inflation trends
INTERNATIONAL: Oil price fall will intensify deflation
CHINA: Producer-level deflation will ease further