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  • 1 Department of Applied Economics I, Economic History, and Institutions, and Moral Philosophy, King Juan Carlos University, Campus of Vicalvaro, Faculty of Legal and Social Sciences, Paseo de los Artilleros s/n, Madrid, 28032, Spain
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Abstract

Deflation is widely feared and opposed. This paper provides arguments to explain the anti-deflationary bias. It is argued that governments favour inflation, that the main deflation theories have influenced negatively the public opinion on deflation, and that rent-seeking behaviour and group formation explains why the opposition to deflationary redistribution is stronger than the opposition to inflationary redistribution. Moreover, psychological concepts, such as anchoring, the endowment effect or the availability heuristic have contributed to the fear of deflation by causing a money illusion and a equalisation of deflation and recession.

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Corvinus University of Budapest
Department of Macroeconomics
Fővám tér 8, Budapest, H-1093, Hungary