The risk of deflation

This paper was prepared for the meeting on Financial Regulation and Macroeconomic Stability: Key issues for the G20, organised by the CEPR and the Reinventing Bretton Woods Committee, London, 31 January 2009. Introduction: The onset of financial instability in August 2007, which quickly spread across the world, raises a number of questions for policy makers. First, what are the roots of the crisis? Many factors have been emphasized in the debate, including the opacity of complex financial products; the excessive confidence in ratings; weak risk management by financial institutions; massive reliance on wholesale funding; and the presumption that markets would always be liquid. Furthermore, poorly understood incentive effects – arising from the originate-to-distribute-model, remuneration policies and the period of low interest rates – are also widely seen as having played a role. Second, how can a repetition of the crisis can be avoided? Much attention is being focused on regulation and supervision of financial intermediaries. The G-20, at its summit in November 2008, noted that measures need to be taken in five areas: (i) financial market transparency and disclosure by firms need to be strengthened; (ii) regulation needs to be enhanced to ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate; (iii) the integrity of financial markets should be improved by bolstering investor and consumer protection, avoiding conflicts of interest, and by promoting information sharing; (iv) international cooperation among regulators must be enhanced; and (v) international financial institutions must be reformed to reflect changing economic weights in the world economy better in order to increase the legitimacy and effectiveness of these institutions. Third, how can the consequences for economic activity be minimized? Many of the adverse developments in financial markets – in particular the collapse of term interbank markets – reflect deeply entrenched perceptions of counterparty risk. Prompt and far-reaching action to support the financial system, in particular the infusion of equity capital in financial institutions to reduce counter-party risk and get credit to flow again, is essential in order to restore market functioning. A particular risk at present is that the rapid decline in inflation in many countries in recent months will turn into deflation with highly adverse real economic developments. This background paper considers how large the risk of deflation may be and discusses what policy can do to reduce it. It is organized as follows. Section 2 defines deflation and discusses downward nominal wage rigidities and the zero lower bound on interest rates. While these factors are frequently seen as two reasons why deflation can be associated with very poor economic outcomes, they should not be overemphasized. Section 3 looks at the current situation. Inflation expectations and forecasts in the subset of economies we look at (the euro area, the UK and the US) are positive, indicating that deflation is not expected. This does not imply that the current concerns of deflation are unwarranted, only that the public expects the central bank to be successful in avoiding deflation. The section also looks at the evolution of headline and “core” inflation, focusing on data from the US and the euro area. Section 4 reviews how monetary and fiscal policy can be conducted to ensure that deflation is avoided. Section 5 briefly discusses special issues arising in emerging market economies. Finally, Section 6 offers some conclusions. An Appendix discusses deflation episodes in the period 1882-1939

Dynamics and symmetries of a field partitioned by an accelerated frame

The canonical evolution and symmetry generators are exhibited for a Klein-Gordon (K-G) system which has been partitioned by an accelerated coordinate frame into a pair of subsystems. This partitioning of the K-G system is conveyed to the canonical generators by the eigenfunction property of the Minkowski Bessel (M-B) modes. In terms of the M-B degrees of freedom, which are unitarily related to those of the Minkowski plane waves, a near complete diagonalization of these generators can be realized.Comment: 14 pages, PlainTex. Related papers on accelerated frames available at http://www.math.ohio-state.edu/~gerlac

Atomic decompositions of mixed norm Bergman spaces on tube type domains

We use the author's previous work on atomic decompositions of Besov spaces with spectrum on symmetric cones, to derive new atomic decompositions for Bergman spaces on tube type domains. It is related to work by Ricci and Taibleson who derived decompositions for classical Besov spaces from atomic decompositions of Bergman spaces on the upper half plane. Moreover, for this class of domains our method is an alternative to classical results by Coifman and Rochberg, and it works for a larger range of Bergman spaces.Comment: 9 page

The uncertainty principle for operators determined by Lie groups

For unbounded operators A,B and C in general, with C closure of [A,B] does not lead to the uncertainty relation ||Au|| ||Bu|| >= | |/2. If A,B and C are part of the generators of a unitary representation of a Lie group then the uncertainty principle above holds.Comment: 2 page

Paired Accelerated Frames

The geometrical and quantum mechanical basis for Davies' and Unruh's acceleration temperature is traced to a type of quantum mechanical (``achronal'') spin. Its existence and definition are based on pairs of causally disjoint accelerated frames. For bosons the expected spin vector of monochromatic particles is given by the ``Planckian power'' and the ``r.m.s. thermal fluctuation'' spectra. Under spacetime translation the spin direction precesses around that ``Planckian'' vector. By exhibiting the conserved achronal spin four-current, we extend the identification of achronal spin from single quanta to multiparticle systems. Total achronal spin conservation is also shown to hold, even in the presence of quadratic interactions.Comment: 22 pages, Plain Tex, one figure. Also published in Proc. of the 7th Marcel Grossmann Meeting edited by R.T. Jantzen and G.M. Keiser (World Scientific, Singapore, 1996), 957-976. Related papers on accelerated frames are available at http://www.math.ohio-state.edu/~gerlac