TY - JOUR AU - Bordo,Michael D. AU - Lane,John Landon AU - Redish,Angela TI - Good versus Bad Deflation: Lessons from the Gold Standard Era JF - National Bureau of Economic Research Working Paper Series VL - No. 10329 PY - 2004 Y2 - February 2004 UR - http://www.nber.org/papers/w10329 L1 - http://www.nber.org/papers/w10329.pdf N1 - Author contact info: Michael D. Bordo Department of Economics Rutgers University New Jersey Hall 75 Hamilton Street New Brunswick, NJ 08901 Tel: 732/822-7152 Fax: 732/932-7416 E-Mail: bordo@econ.rutgers.edu John Landon-Lane Department of Economics 75 Hamilton Street Rutgers University College Avenue Campus New Brunswick, NJ 08901-1248 E-Mail: lane@econ.rutgers.edu Angela Redish Department of Economics University of British Columbia #997 1873 East Mall Vancouver BC V6T 1Z1 CANADA E-Mail: anji@econ.ubc.ca M2 - featured in NBER digest on 2004-04-01 AB - Deflation has had a bad rap, largely based on the experience of the 1930's when deflation was synonymous with depression. Recent experience with declining prices in Japan and China together with the concern over deflation in Europe and the United States has led to renewed attention to the topic of deflation. In this paper we focus our attention on the deflation experience of the United States, the United Kingdom, and Germany in the late nineteenth century during a period characterized by low deflation, rapid productivity growth, positive output growth, and where many nations had a credible nominal anchor based on gold: circumstances which have resonance with the world of today. We identify aggregate supply, aggregate demand, and money supply shocks using a structural panel vector autoregression. We then use historical decompositions to investigate the impact that these structural shocks had on output and prices. Our findings are that the deflation of the late nineteenth century reflected both positive aggregate supply shocks and negative money supply shocks. However, the negative money supply shocks had little effect on output. This we posit is because the aggregate supply curve was very steep in the short run during this period. This contrasts greatly with the deflation experience during the Great Depression. Thus our empirical evidence suggests that deflation in the nineteenth century was primarily good. ER -