China’s had deflation before. This is what it needs to do this time
A common thread in all previous deflationary episodes is that balance sheet issues were central to the contraction, and the resolution of these was key. It is here that policymakers could focus.
China’s global footprint is now so large that uncertainty over the timing of its exit from its third major deflationary episode in the past three decades is one of the most important questions in the world economy.
Prior episodes offer some useful guidance on how to do it.
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Huw McKay is a visiting fellow at the Crawford School of Public Policy at The Australian National University.
