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. In secular stagnation, the term secular is intended to differentiate between the normal business cycle and longterm, chronic stagnation. The term secular stagnation refers to a market economy with a chronic secular or longterm lack of demand. With the right policy choices, we can have both reasonable growth and financial stability. In a theory of accumulation and secular stagnation, aronoff explores malthus ideas relating to secular stagnation and uses the insight gained to understand the origins of the subpar growth and tepid employment, periodically punctuated by booms, that has plagued the us economy since the turn of the millennium. May 04, 2016 this is a short revision video on some of the causes of secular stagnation in many advanced developed countries. Some time ago speaking at the imf, i joined others who have invoked the old idea of secular stagnation and raised the possibility that the american and global economies could not rely on normal market mechanisms to assure full employment and strong growth without sustained unconventional policy support. This ebook gathers the thinking of leading economists including larry summers, paul krugman. Well, we have three sets of theories, and here is a graph showing trend growth, potential output, and actual output that helps organize the different views. The cepr press ebook on secular stagnation has been viewed over 80,000 times since it was published.
The basic notion behind secular stagnation is this that the capitalistic economy is basically characterized with instability. Jan 07, 2014 secular stagnation is not inevitable, summers wrote earlier this week. Secular stagnation and the slow growth and financial instability associated with it have political as well as economic consequences. This ebook gathers the views of leading economists including summers, krugman, gordon, blanchard, koo. Secular stagnation effects on financial markets seeking. Citeseerx document details isaac councill, lee giles, pradeep teregowda. 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. This could result from a combination of factors, such as low levels of consumer spending high savings, a high fixedexchange rate that limits exports and leads to increased import. The financial crisis took its toll on individuals and institutions around the globe, with millions of american being deeply impacted. First, the world has been haunted for a very long time, well before the crisis, by a structural aggregate demand deficiency that is likely to persist well into the future and keep growth sluggish. Secular stagnation facts, causes and cures rates and. How secular stagnation spreads and how it can be cured.
Luckily, an expansionary fiscal policy can help overcome the problem and get growth back on track. The postgfc environment of subdued interest rates and growth in the u. If middleclass living standards were increasing at traditional rates, politics across the developed world would likely be far less surly and dysfunctional. Reflections on the new secular stagnation hypothesis. Secular stagnation in the form of slow potential 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. Luckily, an expansionary fiscal policy can help overcome the problem and get growth back on. Conditions of secular stagnation low interest rates, below target inflation, and sluggish output growth now characterize much of the global economy. My earlier post arguing that robotisation wouldnt destroy jobs, slash wages or drastically shorten the working week prompted many thoughtful responses. However, former us federal reserve chairman ben bernanke interprets this as evidence of a temporary or cyclical global savings glut. Secular stagnation in the form of slow potential 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.
Download it once and read it on your kindle device, pc. It is too early to tell whether secular stagnation is really secular, but if it is, current. How to tackle secular stagnation world economic forum. The following figure, taken from a financial times blog post, shows the duration and average rate of growth of every economic expansion in the postwar period. He has analyzed trade cycles, as well as he has suggested the measures regarding sustained economic growth. Secular stagnation theory originated with alvin hansen, a keynesian economist, in the 1930s. The experience of japan in the 1990s and now that of europe and the us suggests. Secular stagnation is not inevitable, summers wrote earlier this week. However, former us federal reserve chairman ben bernanke interprets this as evidence of a temporary or cyclical global savings glut iii. Mar 31, 2015 ben bernanke looks at the question of whether the u. So mitigating secular stagnation is of profound importance.
Incorporated as a notforprofit foundation in 1971, and headquartered in geneva, switzerland, the forum is tied to no political, partisan or national interests. However, an economy facing secular stagnation behaves as if it is operating. Facts, causes, and cures a ebook edited by coen teulings and richard baldwin a cepr press centre for economic policy research cepr the centre for economic policy research cepr is a network of almost 900 research economists based mostly in european universities. Facts, causes, and cures, with heavy hitters such as paul krugman, barry eichengreen. Use features like bookmarks, note taking and highlighting while reading are we doomed to secular stagnation limitations of supplyside economic policies. Facts, causes and cures a new vox ebook friday 12 sep 2014. Secular stagnation secstag means that negative real interest rates are needed to equate saving and investment at fullemployment output levels. In this context, the term secular means longterm from latin saeculumcentury or lifetime, and is used in contrast to cyclical or shortterm. Download it once and read it on your kindle device, pc, phones or tablets. Rather, in the words of investment manager james montier of the gmo llc, secular stagnation is a policy choice that we as citizens and policymakers can confidently attack, especially as. Secularstagnation theory originated with alvin hansen, a keynesian economist, in the 1930s. Facts, causes, and cures, with heavy hitters such as paul krugman, barry eichengreen, richard koo, and joel mokyr contributing chapters.
The concept of secular stagnation originally formulated by the eminent depressionera economist alvin hansen, has experienced a revival since my. In this work we provide an alternative view on the advanced economies tendencies to stagnation, based on josef steindls contributions. Secular stagnation hansens thesis features secular. The third part examines the current neoclassical arguments that could explain the current state of long stagnation, from the supply and the demand sides. Before turning to policy, though, there are two central issues regarding the secular stagnation thesis that have to be addressed. But averting it requires making the right policy choices, ending the disastrous trend towards ever less government.
Six years after the global crisis, the recovery is still anaemic despite years of nearzero interest. The debate on secular stagnation suffers from vagueness and several shortcomings, which affect its economic policy implications. Our results indicate that secular stagnation is not a significant threat to most euroarea countries, with one possible exception. A range of authorities has argued recently that rather than the 200708 global financial crisis representing a major, but oneoff, downturn, mature economies have now entered a period of secular stagnation where underlying productivity growth rates have fallen to very low rates. In economics, secular stagnation is a condition when there is negligible or no economic growth in a marketbased economy.
Dec 16, 20 if secular stagnation concerns are relevant to our current economic situation, there are obviously profound policy implications that i will address in a subsequent column. The economist explains what it means to suffer from. Facts, causes and cures kindle edition by baldwin, richard, teulings, coen. This is a short revision video on some of the causes of secular stagnation in many advanced developed countries. How secular stagnation spreads and how it can be cured vox. 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. Summers contributed a chapter, reflections on the new secular stagnation hypothesis, to the new vox ebook, secular stagnation. Secular stagnation and macroeconomic policy, mundellfleming lecture, by lawrence h. Six years after the global crisis, the recovery is still anaemic despite years of nearzero interest rates and extraordinary central bank manoeuvres. Ben bernanke looks at the question of whether the u. Historically, a booming economy with low unemployment and high gdp growth i.
Secular stagnation effects on financial markets seeking alpha. Posts about secular stagnation written by bankunderground. This ebook gathers the views of leading economists including larry summers, paul krugman, bob gordon, olivier blanchard. The world economic forum is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas.
Secular stagnation financial definition of secular stagnation. The secular stagnation hypothesis suggests that low interest rates may be the new normal in years to come. Economic fluctuations and growth, monetary economics. In a theory of accumulation and secular stagnation, aronoff explores malthus ideas relating to secular stagnation and uses the insight gained to understand the origins of the subpar growth and tepid employment, periodically punctuated by booms, that has plagued the us. It suggests a change of fundamental dynamics which would play out only in its own time. The voxeu ebook secular stagnation begins with a chapter by lawrence summers that sets out the playing field. Use features like bookmarks, note taking and highlighting while reading secular stagnation. A year ago, lawrence summers perceptive warnings about the possibility of secular stagnation in the world economy were dominating global markets. The presence of secular stagnation in a number of euroarea countries has important implications for ecb decisionmaking i. Are we doomed to secular stagnation limitations of.
Jan 06, 2014 secular stagnation is not an inevitability. Drawing on a large body of literature, this paper synthesizes the research on secular. This ebook gathers the views of leading economists including summers, krugman, gordon, blanchard, koo, eichengreen, caballero, glaeser and a dozen others. 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 worry is that secstag will make it hard to achieve full employment with low inflation and financialstability using macroeconomic policy asitis currently structured and operated. Considering the open economy, he suggests excess savings. What it means to suffer from secular stagnation the economist. The secular stagnation hypothesis can be summarised in three propositions. 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.
Six years after the crisis and the recovery is still anaemic despite years of zero interest rates. Typically, governments will seek to counteract a tendency towards secular stagnation by expansionary demandmanagement policies involving, for example, tax cuts, increased government spending and reduced interest rates to stimulate consumption and investment and, perhaps, a devaluation of the exchange rate to increase demand for exports and to. Countries suffering from the stagnation bug are burdened with too much saving and too little investment. Secular stagnation definition, problems, solutions.
A longterm slowdown in the economy over decades can be seen as superimposed on the regular business cycle, reflecting the trend rather than the cycle. Richard serlin and others countered, arguing that if automation affects all sectors, then displaced workers may have nowhere to go. Outputinflation dynamics and policy prescriptions are fundamentally different from those in the. Many economists attribute this to secular trends such as a structural slowdown in global growth, changing demographics and a fall in the relative price of capital goods which will hold equilibrium rates low for a decade or more eggertsson et al.
Are we doomed to secular stagnation limitations of supplyside economic policies kindle edition by petersen, uwe. This ebook gathers the thinking of leading economists on whether secular stagnation to blame. This column argues that this prospect should not only lead to a major rethinking of policy from the perspective of individual economies, but also a major rethinking about monetary and fiscal policy in the international context, the role of international capital flows, and. The secular stagnation hypothesis finds some support in the evidence, with the real interest rate observed to be declining since the early 2000s. The cepr press ebook on secular stagnation has been viewed over 80,000 times since it was published on 15 august 2014. The key to understanding why lies in the concept of secular stagnation. Although its economy has been volatile, what with tsunamis and consumptiontax hikes. Secular stagnation and the zero lower bound this brings us to the secular stagnation hypothesis put forward by hansen 1939. Fundamental changes are needed because the united states is suffering from an extended period of slow and declining growth, what is known as secular stagnation.
Summers wrote numerous articles following the 2008 global financial crisis 20082009 global financial crisis the global financial crisis of 20082009 refers to the massive financial crisis the world faced from 2008 to 2009. Four explanations for secular stagnation are distinguished. 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. Real interest rates have fallen by around 5 percentage points since the 1980s. Ultimately, while secular stagnation is a powerful metaphor for our current malaise, we dont think its useful for investing. The voxeu ebook secular stagnation begins with a chapter by lawrence summers that sets out the.
1299 1256 182 917 138 151 1171 1438 611 703 434 1062 964 1477 1408 584 975 485 656 358 1138 128 317 1217 456 295 1376 1046 136 167 871 1382 863 473 1173 1224 1409 1357 225 1248 16 1280 102 38 301