Of late, the world bank, the international monetary fund imf. Economic fluctuations and growth, monetary economics conditions of secular stagnation low interest rates, below target inflation, and sluggish output growth now characterize much of the global economy. Conditions of secular stagnation low interest rates, below target inflation, and sluggish output growth now characterize much of the global economy. Secular stagnation under the fear of a government debt crisis. Equilibrium in the new situation should occur at r1 which is negative. Economic stagnation is a prolonged period of slow economic growth traditionally measured in terms of the gdp growth, usually accompanied by high unemployment. 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.
Alvin hansen coined the term in his 1938 american economic association presidential address hansen, 1939, and lawrence summers 2014 resurrected it in reference to the. This ebook gathers the views of leading economists including larry summers, paul krugman, bob gordon, olivier blanchard. April 14, 2017 abstract this paper formalizes and quanti. Economists, such as larry summers have written on secular stagnation arguing the world has entered a period of substantially lower economic growth. On falling neutral real rates, fiscal policy, and the risk of secular stagnation.
Summers purchase article listen to article purchase audio as surprising as the recent financial crisis and recession were, the behavior of the worlds industrialized economies and. In countries with symptoms of secular stagnation, more monetary and fiscal stimulus should be accompanied by structural reforms to boost potential growth and. The pdf remains freely downloadable, but as the european debate on secular stagnation is moving into policy circles, we decided to also make it a kindle book. Normal policy settings of real interest rates in the 2 percent. Lawrence summers deserves a nobel prize for reviving the. Six years after the global crisis, the recovery is still anaemic despite years of nearzero interest. February 5, 2020 october 12, 2017 by tejvan pettinger. 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. The us economy has experienced a slowdown in its longterm growth. This article provides hansens expertise guide to secular stagnation of business cycle. Im gratified that there seems to be general acceptance of the core secular stagnation argument.
In this context, the term secular means longterm from latin saeculumcentury or lifetime, and is used in contrast to cyclical or shortterm. Secular stagnation is a term coined to describe a prolonged period of lower economic growth. On falling neutral real rates, fiscal policy, and the risk of secular. The economist explains what it means to suffer from secular stagnation. Those with very high incomes have a relatively low propensity to consume, and virtually all the income gains in. Secular stagnation lost decades many our focus is on a scal channel. Much of this concern arises from the longrun effects of shortrun developments and the inability of monetary policy to accomplish much more. With donald trump voted in as the 45 th us president, the world economy has witnessed another sobering reminder of the rise of populism, inwardlooking politics and a sweeping antiestablishment wave, having. Stefano di bucchianico roma tre university political economy workshop 19th september 2017. In this paper, webuild a model that allows us toconsider theideas of secular stagnation and expectationsdriven liquidity traps in a uni ed setting. This debate has forwarded both demand and supplyside arguments regarding the pros and cons of secular stagnation. Professor of economics, american university, washington, dc 20016, usa. Last month in this space i argued that we may be in a period of secular stagnation in which sluggish growth, output and employment at levels well below potential, and problematically low real interest rates might coincide for quite some time to come.
Pdf demand, distribution, productivity, structural. Explaining the world, daily the economist explains. In particular, secular stagnation has been studied in models with heterogeneous agents eggertsson, mehrotra and robbins, 2019. The bursting of the bubble economy ushered in an era of zero interest rates and unconventional monetary policy, long before such measures were widely adopted elsewhere during the global financial crisis. National association for business economics, 33rd economic policy conference. By focusing on the impacts of the 2008 financial crisis, ball 2014 concludes that on average countries loss 8. E31,e32,e52 abstract we propose an overlapping generations new keynesian model in which a permanent or very persistent. Current palliatives are appropriate but unlikely to be longterm solutions. The cepr press ebook on secular stagnation has been viewed over 80,000 times since it was published on 15 august 2014. The deep causes of secular stagnation and the rise of. The orthodox view on secular stagnation seems to adopt one of two perspectives.
July 24 2014 secular stagnation, debt overhang and other rationales for sluggish growth, six years on by. Following his consequential speech at the imf, a large macroeconomic literature in new keynesian economics has emerged on the secular stagnation. To see how we can get secular stagnation in such a loanablefunds world, we introduce a shock, say, an ageing population a demographic imbalance, a rise in extreme inequality, or an asian savings glut, due to which the savings schedule shifts down. This raises profound questions about stabilization policy going forward. Reflections on secular stagnation princeton university. Ben bernanke looks at the question of whether the u. Under secular stagnation it is, as summers argues, a fiscal expansion. But if the problem is a global savings glut then the right policy is to focus on what is driving the situation i. On falling neutral real rates, fiscal policy, and the risk. Secular stagnation institute for new economic thinking. Nonkeynesian e ect giavazzi and pagano 1990, alesina and perotti 1996, alesina and ardagna 1998, and perotti 1999. The us must work on its economic relationship with china.
The original theory of secular stagnation is generally attributed to the great depression era harvard economist alvin hansen. What mainstream economists get wrong about secular stagnation. The nature of macroeconomics has changed dramatically in the last seven years. Secular stagnation, hysteresis, and the zero lower bound lawrence h. Modern discussions of secular stagnation point to the decline in real interest rates since. Now, instead of being concerned with minor adjustments to stabilize about a given trend, concern is focused on avoiding secular stagnation. Secular stagnation in the form of slow poten tial output growth over the past halfdecade reflects the slowness of growth in both labor productivity and in aggregate hours of work, and slow growth in the latter is due both to slowing population growth and to a decline in the labor force participation rate lfpr. The debate about the new secular stagnation hypothesis has gained momentum and many facets have recently been added. Secular stagnation refers not to the literal stagnation, i. 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. Secular stagnation and monetary policy by lawrence h. The threat of secular stagnation has not gone away.
By contrast, our model does not suffer from these coun terfactual dynamics. Fukao kyoji hitotsubashi university and rieti ikeuchi kenta national institute of science and technology policy. It suggests a change of fundamental dynamics which would play out only in its own time. The secular stagnation project will shed light on and explore policy responses to a pressing worldwide issue, which up to this point, has received limited rigorous study. I have taken the liberty to transcribe summers answer i added line breaks and numbers from 1 to 5 to distinguish the five possible causes mentioned by summers. Freeland asks summers about the causes of secular stagnation at 28 minutes, 23 seconds in the video. New research from lukasz rachel of the london school of economics and bank of england and harvard economist. The age of secular stagnation what it is and what to do about it by lawrence h. Secular stagnation and the relative price of investment goods gregory thwaites lse and bank of england first version. So far it is difficult to find statistical evidence for a secular slowdown. Under some definitions, slow means significantly slower than potential growth as estimated by macroeconomists, even though the growth rate may be nominally higher than in other countries not experiencing economic stagnation. The economist explains what it means to suffer from. Secular stagnation and monetary policy federal reserve bank of.
Secular stagnation and returns on capital economic. 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. The present paper emphasizes the role of demand, income distribution, endogenous productivity reactions, and other structural changes in the slowdown of the growth rate of output and productivity. There has been an outpouring of chat in both policy circles and the blogosphere concerning secular stagnation. The economist explains how will recent primary reforms change the. His main thesis of secular stagnation was aimed at showing the inherent instability of the capitalist system. Secular stagnation in japan and abroad for over two decades now, japan has found itself at the forefront of economic policymaking. He studied fluctuations in national income suggested measures for steady growth. The concept of secular stagnation originally formulated by the eminent depressionera economist alvin hansen, has experienced a revival since my. We evaluate the global macroeconomic effects of crosscountrycoordinated fiscal and monetary policies to counterbalance secular stagnation by simulating a fiveregion new keynesian model of the world economy, calibrated to the united states us, the euro area, japan, china, and the rest of the world. Facts, causes and cures edited by coen teulings and richard baldwin centre for economic policy research 77 bastwick street, london ec1v 3pz tel.
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