Thus, for example, if the natural rate of interest is 4%, then there is no equilibrium that is consistent with inflation below 4% in steady state. Robbins this paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently low or negative natural rate of interest leading to a chronically binding zero lower bound zlb. Gordon alvin hansen 1939 popularized the term secular stagnation, and we are now, at the suggestion of larry summers 2014, considering the application of hansens term to the current us economy, because the pace of out. Central tenet of secular stagnation hypothesis summers, 2014.
Explores the quantitative importance of factors behind r decline. This idea was termed the secular stagnation hypothesis. October 12, 2014 abstract we propose an overlapping generations new keynesian model in which a permanent or very persistent slump is possible without any selfcorrecting force to full employment. March 23, 2018 abstract this paper formalizes and quanti. Theory and quantitative evaluation by gauti eggertsson, neil mehrotra and jacob. Secular stagnation, internal limits, biophysical limits. Outputinflation dynamics and policy prescriptions are fundamentally different from those in the standard new keynesian framework. April 14, 2017 abstract this paper formalizes and quanti. The article explores how expansionary fiscal policy by the u. Summers published an article title, the age of secular stagnation. But the basic conceptual model of mainstream economics exhibits clearly.
Consequently the level and rate of change of private debt could have been macroeconomically significant not merely since 2008, but since as long ago as 1985. To analyse the most important aspects of the secular stagnation hypothesis, this paper considers the effects of hysteresis in potential output in a newkeynesian model that is extended with. The trigger for the slump is a deleveraging shock, which creates an oversupply of savings. Published in volume 11, issue 1, pages 148 of american economic journal. A model of secular stagnation consider an overlapping generations economy in which one household is born at each period t.
Eggertsson and neil mehrotra 11 balance sheet recession is the reason for secular stagnation 1 richard c koo 12 monetary policy cannot solve secular stagnation alone 143 guntram b wolff further on sclerosis secular stagnation. Low possibly negative equilibrium real interest rate data. Economists, such as larry summers have written on secular stagnation arguing the world has entered a period of substantially lower economic growth. We thank the institute for new economic thinking for financial support. On falling neutral real rates, fiscal policy, and the risk. Theory and quantitative evaluation by gauti eggertsson, neil mehrotra and jacob robbins. A comment on casey mullingans test of the paradox of toil, preliminary note, may 2010. This paper formalizes and quantifies the secular stagnati.
Summers the nature of macroeconomics has changed dramatically in the last seven years. Some notes on the secular stagnation hypothesis stefano di bucchianico roma tre university political economy workshop 19th september 2017 abstract in the aftermath of the great recession recovery in united states and the eurozone has been sluggish and unsatisfying in terms of growth and unemployment reduction. In this paper, webuild a model that allows us toconsider theideas of secular stagnation and expectationsdriven liquidity traps in a uni ed setting. Given the shortcomings in the current debate on secular stagnation, this paper will provide the foundations of an alternative view on stagnation tendencies based on the works of. Using a 56period quantitative life cycle model, a standard. Secular stagnation was dusted off by hanswerner sinn in a 2009 article dismissing the threat of inflation, and became popular again when larry summers invoked the term and concept during a 20 speech at the imf. We propose an overlapping generations new keynesian model in which a permanent or very persistent slump is possible without any selfcorrecting force to full employment. What it is and what to do about it, in the february issue of foreign affairs. A model of secular stagnation gauti eggertsson neil mehrotray this version. Secular stagnation under the fear of a government debt crisis. We have shown that in the model with capital, the presence of productive assets carrying a positive marginal product does not eliminate the possibility of a secular stagnation.
Secular stagnation is a term coined to describe a prolonged period of lower economic growth. He points to factors, such as ineffective monetary policy and weak demand for. Secular stagnation makes it harder to achieve full employment with low in ation and and a zero lower bound zlb on policy rates. Theory and quantitative evaluation paper coauthors. Their new paper is here, ungated here pdf, here is the key passage. Models of secular stagnation find that monetary policymakers could make some changes to their toolkit, but their ability to stabilize the economy on their own is still more constrained. Secular stagnation under the fear of a government debt crisis keiichiro kobayashi kozo ueday january 16, 2018 abstract by using a model incorporating the risk of an economic crisis triggered by the accumulation of government debt, we provide a new perspective to explain the driving forces behind a secular stagnation. What are the macroeconomic policy tools to counter secular.
December 7, 2016 abstract we formalize the idea of secular stagnation and evaluate it quantitatively. Secular stagnation, hysteresis, and the zero lower bound lawrence h. With a somewhat different list of factors in mind, the harvard economist alvin hansen labeled the failure of private investment to fully absorb private savings secular stagnation because of the threat that it would mean insufficient demand. April 6, 2014 abstract in this paper we propose a simple overlapping generations new keynesian model in which a permanent or very persistent slump is possible without any selfcorrecting force to full employment. These two hypotheses di er in the local determinacy of the equilibrium. National association for business economics, 33rd economic policy conference. A bayesian approach to estimating tax and spending multipliers, with matthew denes, federal reserve bank.
Secular stagnation can arise if there is a persistent decline in the natural rate of interest, which, if severe. However, the economist criticizes secular stagnation as a baggy concept, arguably too capacious for its own good. A model of secular stagnation with neil mehrotra, october 2014. Outputinflation dynamics and policy prescriptions are. The key assumption is that capital has a strictly positive rate of depreciation. A model of secular stagnationfebruary 22, 2015 2 18. The economics of secular stagnation secular stagnation. Outputinflation dynamics and policy prescriptions are fundamentally different. One of the main driving forces of secular stagnation, according to hansen, was a decline in the population birth rate and an oversupply of savings that was suppressing aggregate demand. A model of secular stagnation 127 inflation, which can be no lower than the negative of the natural rate of interest. This paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently low or negative natural rate of interest leading to a chronically binding zero lower bound zlb.
The extraordinary events needed to pull the economy out of depression as well as the recent weakness suggest that it is worth considering secular stagnation. A model of secular stagnation reserve bank of australia. Reflections on secular stagnation princeton university. Main features negative real interest rates are needed to equate saving and investment. Other forces that work in the same direction and can both create or exacerbate the problem include a drop in population. Given a discount factor secular stagnation theories from the classical economists to the most recent stagnation debateexamines the role of income distribution in various secular stagnation theoriesincorporates the personal distribution of income in a kaleckiansteindlian model of economic growth and secular stagnation. Presents the rst theoretically consistent model of secular stagnation i y r in a steady state i overcomes signi cant theoretical challenges from previous literature i eggertsson and mehrotra 2014 2. This paper replaces an earlier version of a paper released in 2014 under the title a model of secular stagnation. Building on the work of mark gertler 1999, the first model. Now, instead of being concerned with minor adjustments to stabilize about a given trend, concern is focused on avoiding secular stagnation. Although a focus on accumulation has existed since the inception of economics as a discipline, the current emphasis on growth. E31,e32,e5,e52,e58,e6,e62 abstract this paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently.
Bpea conference drafts, march 78, 2019 on falling neutral real rates, fiscal policy, and the risk of secular stagnation lukasz rachel, lse and bank of england. Secular stagnation throws a wrench into the monetary policy machine as interest rates have dropped so much that policymakers have less control over them. The objective of this paper is to provide new evidence related to the impact of demographics on. This idea was recently resurrected by lawrence summers, who argued that one should think of secular stagna tion as the hypothesis that the natural rate of. We propose an overlapping generations new keynesian model in which a permanent or very. A model of secular stagnation bank for international.