The Impact of Deflation in Economy

Abstract

This study analyzes the effect of deflation on economy. Data includes main macroeconomic indicators such as; GDP growth, interest rate, unemployment rate and inflation which are obtained from International Monetary Fund web page for the period between 1986 and 2013. Deflation in Japan was present for a long-lasting time since the latter half of 1994. Descriptive statistics and multiple regression methods are employed for two sub-periods to highlight the impact of inflation on the Economy of Japan. Estimates of a standard Phillips curve indicate inverse relationship between inflation and unemployment especially during deflation.