I will also discuss why it is necessary to adopt unconventional monetary policy measures when the conventional monetary policy instrument – the central bank’s policy rate – is constrained. Macroeconomic risks of excessively-low inflation From a macroeconomic perspective, excessively-low inflation poses several dangers.
One danger is that low inflation that persists over the longer term provides only a small buffer against deflation: if inflation is low, it only takes a relatively small shock to tip the economy into deflation. The macroeconomic implications of deflation are well known. First, the expectation of falling prices delays purchases and investment.