It is, at least in part, to counter that risk that central banks in a number of countries have kept interest rates very low and used unconventional monetary policies, such as quantitative easing, to provide additional stimulus to their economies. History has taught us that deflation usually comes in the wake of a financial crisis.
This was true of the Great Depression, and of the Japanese deflation of the 1990s. Perhaps the most important lesson of the crisis, then, is that a stable financial system is necessary to keep inflation low, stable and predictable – and limit the risk of falling into a deflationary trap. The policy response – Where does financial stability come in?