Distribution of the Disinflation of Prices in 1990-91 Compared with Previous Business Cycles

Cagan, Philip

"After the post-World War II price decline in 1946, all substantial disinflations are associated with business
contractions. The recent recession of July 1990 to March 1991 fits the usual pattern, except that its disinflation
during the business contraction was on the low side, despite a fairly strong decline in economic activity. This
exception appeared to depart from the historical Philips Curve, and led initially to consternation over the seeming
failure of monetary restraint to combat inflation. In fact, however, most of the disinflation came after the business
contraction. Overall the fraction of prices disinflating exceeded the fraction in every cyclical episode since 1960
except for the severe 1981-82 cycle."



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Academic Units
Department of Economics, Columbia University
Department of Economics Discussion Papers, 720
Published Here
February 28, 2011


March 1995