Although evidence tends to confirm a positive effect on economic activity, estimated results have sometimes turned out to be relatively modest. 1 Regarding price stability, monetary actions in advanced countries have been motivated by recurrent fears of deflation. While such an event cannot be ruled out, concerns about possible implications should not be magnified.
Neither theory nor history establish a clear connection between deflation and poor economic activity. The only evident negative episode seems to be the substantial deflation that occurred during the Great Depression. But at that time prevailing monetary conditions were tight, and no precedent exists of significant deflation under highly expansionary monetary conditions.