Friday, January 23, 2009

CPI 1929 and 2008: Professor Nunes

Professor Nunes makes a compelling point about 1929 deflation: he says it came from reductions in the supply of money, whereas 2008 deflation (he says) came from relative price changes.

I think that 2008 deflation also came from a reduction in the supply of money -- relative to DEMAND. The supply of money did not fall in 2008, but the demand dramatically increased (the "flight to safety") and the Fed failed to fully accommodate it. It's the Fed's job to keep money supply in line with money demand. But read his document and let us know what you think.

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