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Author
Date
2016-11Type
- Working Paper
ETH Bibliography
yes
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Abstract
I study the link between real activity and deflation, taking into account measurement problems in 19th century CPI data. Replications based on modern data show that measurement problems spuriously increase the volatility of inflation as well as the number of deflationary episodes, and they lower inflation persistence. As a consequence, estimates of the link between real activity and deflation may be attenuated because of the errors-in-variables problem. I find that real activity was on average substantially lower during 19th century deflations in the US, after controlling for measurement error using an IV-regression approach. Moreover, the average short-fall in real activity was not significantly different compared to the Great Depression. Using well-measured data for a panel of 17 industrialized economies shows that milder deflations were associated with a lower output gap. But, the association with GDP growth is not statistically significant. Show more
Permanent link
https://doi.org/10.3929/ethz-a-010786535Publication status
publishedJournal / series
KOF Working PapersVolume
Publisher
KOF Swiss Economic Institute, ETH ZurichSubject
Real activity; ECONOMIC HISTORY; Monetary history; DEFLATION; NINETEENTH CENTURY A.D.; Deflation; Measurement error; WIRTSCHAFTSGESCHICHTE; MEASUREMENT ERRORS (MATHEMATICAL STATISTICS); MESSFEHLER (MATHEMATISCHE STATISTIK); NEUNZEHNTES JAHRHUNDERT N. CHR.; IVOrganisational unit
03716 - Sturm, Jan-Egbert / Sturm, Jan-Egbert
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
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ETH Bibliography
yes
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