Template-Type: ReDIF-Article 1.0
Author-Name: Orsolya Csortos
Author-Name: Zoltán Szalai
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: csortoso@mnb.hu
Author-Email: szalaiz@mnb.hu
Title: Possible explanations of the low inflation
environment and restrained investment
activity
Abstract: As a result of the crisis that erupted in 2008, economic activity and inflation have
remained weak in the developed countries, and signs of slowdown have also been
seen in emerging countries that had performed relatively well in the initial years of the
crisis. The slow rate of growth and persistently low inflation create new challenges for
monetary policy. The correct economic policy answers can only be found by exploring
the reasons for this phenomenon. In 2015, the key focus was often on short-term
factors such as falling oil prices. Prices of other commodities have shown similar
volatility in recent years, implying that short-term inflation surprises are not only
being caused by developments in the energy market. At the same time, core inflation
indicators excluding food and energy prices were also low, raising the question
whether the inflation trends are dominated by medium-term or long-term factors.
One possible explanation of the poor performance of the real economy is that in the
pre-crisis years, growth was based on significant indebtedness of economic agents,
which were then forced to adjust their balance sheets after the asset price bubble
burst. This is a process stretching over several years, and it suggest low inflation and
growth rates over the medium term as well. In the views of others, the present slow
growth is the continuation of a trend lasting several decades that had already started
before the crisis and was only interrupted by the crisis and the adjustment. One group
of long-term explanations explains the lengthy recovery with real economy factors,
including the imbalance between savings and investments (“secular stagnation”
and “savings glut” theories). However, more and more people are emphasising the
limitations of these real analyses, and explain the restrained investment activities
with changes in the financial structure, corporate finance and corporate governance.
This paper deals with the reasons for the globally low inflation, which has recently
come into focus for many leading economists and international organisations. We
summarise the different views and opinions, which – due to the nature of the issue –
primarily reflect the considerations of developed countries, but indirectly determine
the future of the whole world economy.
Classification-JEL: E31, E43, E44, E52, G32
Keywords: inflation, economic growth, corporate governance, corporate
financing, monetary policy, monetary analysis
Journal: Financial and Economic Review  
Pages: 29–56
Volume: 14
Issue: 4
Year: 2015
File-URL: http://english.hitelintezetiszemle.hu/letoltes/2-csortos-szalai-en.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:14:y:2015:i:4:p:29-56