Is Deflation a Risk for Greece?

This study explains what are the causes and effects of deflation and, in relation to those, policy options to deal with the phenomenon. Consequently, the nature of deflationary pressures in Greece is analyzed and juxtaposed to explanations proposed in the literature. The situation in Greece is viewed in conjunction with disinflationary trends in the rest of the Eurozone. Vulnerability to longer lasting deflation is questioned. Implications for competitiveness and debt sustainability are explained. The study concludes that, while longer lasting deflation is not established in Greece, evidence is yet inconclusive. Hence, alertness should be maintained. In case deflationary expectations set it, policymakers should act promptly to prevent deflation rather than try to cure it, with monetary policy having a prominent role to play in this.