Pigou effect

The Pigou effect is an economics term that refers to the stimulation of output and employment.

However, the Pigou effect creates a mechanism for the economy to escape the trap:

This is the celebrated (and often misunderstood) real-balance effect, occasionally also known as the Pigou effect.

History of the extensions of the original Pigou effect into more generalized "Wealth effects".

Paul Krugman's description of a liquidity trap resistant to the Pigou effect is also mentioned.

Other apparent evidence against the Pigou effect from Japan may be its long period of stagnating consumer expenditure whilst prices were falling.

Therefore: There is no way for the government to create a "Pigou effect" by issuing bonds, because the aggregate subjective level of wealth will not increase.

The Pigou effect would counterbalance this by shifting the IS curve right due to rising real balances raising expenditures.

The second is the real balance or Pigou effect: asp falls, the real value of private sector net worth rises which stimulates consumption expenditure.

A similar, reverse Pigou effect happens throughout the world in consumer electronics because of depreciating prices (this is sometimes called the Osbourne effect).

(His advocacy of long term inflationary JPY policies was partly based on dismissing the Pigou effect.)

The neo-classical economists, largely through the work of Pigou, produced a counter-argument to the above Keynesian cases known as the Pigou effect or the real balance effect.

If the Pigou effect always operates strongly, the Bank of Japan's policy of near-zero nominal interest rates might have been expected to end the Japanese deflation sooner.

The macroeconomic effect of this on employment is called the Pigou effect, but whether or not this acts as a significant brake on a deflationary spiral is controversial.

While many economists had serious doubts about the existence or significance of this Pigou Effect, by the 1960s academic economists gave little credence to the concept of a liquidity trap.

The Pigou effect was first popularised by Arthur Cecil Pigou in 1943, in The Classical Stationary State (an eight page Economic Journal article).

The Pigou effect was criticized by Kalecki because 'The adjustment required would increase catastrophically the real value of debts, and would consequently lead to wholesale bankruptcy and a " confidence crisis."'