April 8, 2016 – Project Syndicate published an editorial by SEP Senior Fellow Daniel Gros, in which he discusses recent expansive monetary policy stances adopted by central banks. Arguing an excessive obsession with deflation, he points out that consumer prices are falling due to energy and raw mineral prices, meaning that this decline is temporary and should be overlooked. If the rate of revenue increase (nominal GDP growth) were used as the instrument of measure, there is no deflation. The eurozone GDP price index is rising at 1.2%, and while this is below the ECB’s target of 2%, the margin is not substantial enough to justify the ECB’s aggressive use of monetary instruments. He asserts that fear of a deflationary spiral is unsupported, and desperate, unnecessary attempts to stimulate demand could have harmful effects.
- The original article is available from Project Syndicate.