Deflation and output across sectors: results for the Czech Republic

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dc.contributor.authorRyska, Pavel
dc.contributor.authorSklenář, Petr
dc.contributor.otherEkonomická fakultacs
dc.date.accessioned2018-12-06
dc.date.accessioned2018-12-17T08:41:33Z
dc.date.available2018-12-17T08:41:33Z
dc.description.abstractThe present paper looks into the relationship between deflation and economic output. Previous studies relied uniquely on annual macroeconomic data on GDP and prices, which caused lack of observations on deflation. This paper uses panel data on 86 sectors of the Czech economy in 1993-2015, which offer more variation in price changes and display frequent observations of deflation. Our goal is to test the hypothesis whether deflation negatively affects output growth – as is commonly thought – and whether central banks should counter all deflation that appears. The most common argument against deflation is that decreasing prices lead consumers and firms to postpone purchases, which in turn depresses output. We find that (1) sectors with output price deflation and below-average inflation have higher growth rate of output, and that (2) these sectors also tend to show quicker growth in gross value added. This evidence contradicts the often held notion that deflation is linked with recession or subpar growth. It also shows that firms with deflating output prices do not have trouble preserving their profits. Deflation observed in the Czech economy in 1993-2015 is likely to be the result of falling unit costs enabled by firms’ investment rather than the result of falling demand. This might have policy implications. Our results highlight that monetary policy should differentiate among sources of deflation and that deflation observed in the Czech Republic has been rather of the 'good' type. We believe that our approach using sector data is novel because it uncovers more variation in prices and output than the more common approach that uses macroeconomic aggregates.en
dc.formattext
dc.format.extent14 strancs
dc.identifier.doi10.15240/tul/001/2018-4-007
dc.identifier.eissn2336-5604
dc.identifier.issn1212-3609
dc.identifier.orcid0000-0001-5464-1194 Ryska, Pavel
dc.identifier.orcid0000-0002-4710-8233 Sklenář, Petr
dc.identifier.urihttps://dspace.tul.cz/handle/15240/124748
dc.language.isoen
dc.publisherTechnická Univerzita v Libercics
dc.publisherTechnical university of Liberec, Czech Republicen
dc.publisher.abbreviationTUL
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dc.relation.isrefereedtrue
dc.rightsCC BY-NC
dc.subjectdeflationen
dc.subjectprice levelen
dc.subjecteconomic growthen
dc.subjectpanel dataen
dc.subject.classificationE31
dc.subject.classificationC33
dc.subject.classificationN10
dc.titleDeflation and output across sectors: results for the Czech Republicen
dc.typeArticleen
local.accessopen
local.citation.epage107
local.citation.spage94
local.facultyFaculty of Economics
local.filenameEM_4_2018_07
local.fulltextyes
local.relation.abbreviationE+Mcs
local.relation.abbreviationE&Men
local.relation.issue4
local.relation.volume21
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