There is much talk about the global economy being driven into a deflationary spiral as a consequence of the ongoing financial crisis. There is also a considerable amount of misinformation about what deflation means and its economic implications. This web exclusive policy brief explores the origins and consequences of deflation with a view to putting into proper perspective the relevant economic issues for an economy that experiences a bout of falling prices. Historical illustrations are also used to distinguish between sense and nonsense concerning the economics of deflation.

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