This paper investigates whether oecd countries are facing secular stagnation. 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. Since the depths of the financial crisis in 20082009, most financial indicators have stabilized. As surprising as the recent financial crisis 1 and recession were, the behavior of the worlds industrialized. 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 financial markets during the recovery has been even more so. This paper replaces an earlier version of a paper released in 2014 under the title a model of secular stagnation. There has been much attention on the secular stagnation trends that have emerged in the us economy since the great recession. Secular stagnation and monetary policy federal reserve bank of. The number of job openings has steadily risen as well. Economic fluctuations and growth several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired investment, leading to secular stagnation. On secular stagnation and low interest rates european central bank. Secular stagnation at the allied social science associations conference 2015, and the oecd 2015. Panel c shows that the broad picture is also similar when we focus on the post2000 sample 20002015, where concerns about secular stagnation have become more prominent.
Secular stagnation and macroeconomic policy springerlink. 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. The role of demography in explaining secular stagnation. Larry summers can be granted the merit to have restated the secular stagnation hypothesis in modern terms and in a modern age. The secular stagnation hypothesis has gained traction in the aftermath of the global crisis. Secular stagnation theory has developed substantially recently and offers substantial insights that policymakers have yet to fully internalize. The deep causes of secular stagnation and the rise of populism march 27, 2017 by james montier, philip pilkington. Summers s surprising as the recent financial crisis and recession were, the behavior of the worlds industrialized economies and financial markets during the recovery has been even more so. Jel e23, e32, e43, g01, i31, j14 over the last few decades a large literature has emerged on the role of demographic change on output growth. Though the consensus around what secular stagnation means is loose, one factor almost everyone agrees on is the lack of population growth that concerned hansen has. On secular stagnation in the industrialized world brookings. Secular stagnation, monetary policy, zero lower bound jel classi. The effect of aging on economic growth in the age of automation by daron acemoglu and pascual restrepo. Six years after the global crisis, the recovery is still anaemic despite years of nearzero interest.
Reforms that could help avoid secular stagnation in the long run would also boost demand today. July 4, 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. Most observers expected the unusu ally deep recession to be followed by an unusually rapid recovery, with output and employment. Secular stagnation, hysteresis, and the zero lower bound lawrence h. Secular stagnation is a term coined to describe a prolonged period of lower economic growth. In summers 2014a, 2014b we can find a clear cut summing up of the main concerns and propositions of the former us treasury minister. As shown in figure 4, the current forecast is that gdp per working age american. As surprising as the recent financial crisis and recession were, the behavior of the worlds industrialized economies and financial markets during the recovery has been even more so.
New approaches are needed to deal with sluggish growth, low interest rates, and an absence of inflation lawrence h. The cepr press ebook on secular stagnation has been viewed over 80,000 times since it was published on 15 august 2014. Several recent theories emphasize the negative effects of an aging population on. Table 2 extends the sample to 1965 and reports regressions with two differences of 25 years for each country stacked together. However, the real parts of the economies in the industrialized world continue to lag.
Gordon is likely right that over the next several years, the growth in the potential output of the american economy and in the real wages of american. Conditions of secular stagnation low interest rates, below target inflation, and sluggish output growth now characterize much of the global economy. This ebook gathers the views of leading economists including larry summers, paul krugman, bob gordon, olivier blanchard. Ar interpret their empirical evidence as contradicting the socalled secular stagnation hypothesis see summers 20, 2014 or eggertsson and mehrotra 2014 because the secular stagnation hypothesis is often tied to aging as one explanatory force, while the secular stagnation itself. Economists, such as larry summers have written on secular stagnation arguing the world has entered a period of substantially lower economic growth. Summers the nature of macroeconomics has changed dramatically in the last seven years. It is said in this situation that the nominal rate is constrained by a zero lower bond zlb. The deep causes of secular stagnation and the rise of. In the 10 months since summers initial secular stagnation talk, the unemployment rate has fallen from 7 percent to 5.
Moreover, in the presence of negative rates, economic agents would be more inclined to keep their savings in a monetary form with zero interest rates. The term secular stagnation was originally coined by alvin hansen in 1938 to describe what he feared was the fate of the american economy following the great depression of the early 1930s. Now, instead of being concerned with minor adjustments to stabilize about a given trend, concern is focused on avoiding secular stagnation. New approaches are needed to deal with sluggish growth, low interest rates, and an absence of inflation. Luckily, an expansionary fiscal policy can help overcome the problem and get growth back on. This analysis leads to the conclusion that the fall in real longterm interest rate. The golden age was characterised by high rates of employment, economic growth, and an equitable. Macroeconomics in the age of secular stagnation ofce. The age of secular stagnation by summers, lawrence h. We thank the institute for new economic thinking for.
Several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired investment, leading to. A striking example is the growing use of highpowered computers and radically new software in material science. This paper formalizes and quantifies the secular stagnation hypothesis. Unified growth theories model the entire process of the endogenous exit from long. Eggertsson and mehrotra 2014proposeamodel where secular stagnation can be triggered by a decrease in population growth, among other factors. The increase in life expectancy, which has not been offset by an increase in the retirement age, has led to an increase in the stocks of savings. Macroeconomics in the age of secular stagnation 75 the ecb would have to pay banks to borrow. Age dependent marginal propensity to consume are a function of fertility and mortality. Secular stagnation effects on financial markets seeking. Most observers expected the unusually deep recession to be followed by an unusually rapid recovery, but that hasnt happened. Secular stagnation and the zero lower bound this brings us to the secular stagnation hypothesis put forward by hansen 1939. Aging, secular stagnation and the business cycle, wp1867. Age composition a ects interest rate and aggregate demand. The age of secular stagnation what it is and what to do about it by lawrence h.
Most observers expected the unusually deep recession to be followed by an. Point of view accepting the reality of secular stagnation. So secular stagnation is able to explain why bonds have rallied, and that has underpinned equity values, but at the cost of an increase in financial instability. T his characterization has generated calls for more government spending stimulus. On falling neutral real rates, fiscal policy, and the risk. Facts, causes and cures edited by coen teulings and richard baldwin centre for economic policy research 77 bastwick street, london ec1v 3pz tel. The key to understanding why lies in the concept of secular stagnation. E31,e32,e52 abstract we propose an overlapping generations new keynesian model in which a permanent or very persistent. Gordon, meanwhile, has argued for what might be called supplyside secular stagnationa fundamental decline in the rate of productivity growth relative to its golden age, from 1870 to 1970. The age of secular stagnation what it is and what to do about it lawrence h.
The economic and financial crisis of 2008 caused a severe reces sion. Secular stagnation is defined as a situation when policy interest rates bounded at zero fail to stimulate demand sufficiently, due to low or negative neutral real interest rates and low inflation, and when ensuing prolonged and subdued growth undermines potential growth via labour hysteresis and discouraged investment. He points to factors, such as ineffective monetary policy and weak demand for. The article explores how expansionary fiscal policy by the u. This column argues that demography has played an important role in reducing the interest rates. Following gertler 1999, we aggregate conditions within each age group.
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