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Deflation Not Bad For Economy Or Stocks

  • Published: December 26th, 2016
  • by Larry Swedroe

The standard definition of “deflation” is “a fall in prices.” A common assumption among investors is that deflation is bad for real economic growth and, therefore by extension, also for real dividend growth.

However, that may not necessarily be the case. For example, deflation can be separated into good deflation, which typically follows a positive supply shock, and bad deflation, which typically follows a negative demand shock. Investor fear of deflation stems from the possible consequences of bad deflation.

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