Low interest rates and secular stagnation: Is debt a missing link?

Claudio Borio, Piti Disyatat, 25 June 2014



Today, the US government can borrow for ten years at a fixed rate of around 2.5%. Adjusted for expected inflation, this translates into a real borrowing cost of under 0.5%. A year ago, real rates were actually negative. With low interest rates dominating the developed world, many worry that an era of secular stagnation has begun (Summers 2013).

Topics: Financial markets, Global crisis, Monetary policy
Tags: debt, global crisis, interest rates, monetary non-neutrality, monetary policy, natural rate of interest, risk-taking channel of monetary policy, secular stagnation

On the causes of secular stagnation: China, relative prices, and the collapse of manufacturing

Douglas L. Campbell, 15 April 2014



The 2000s began with the Fed narrowly missing the zero lower bound on short-term interest rates; they ended with the US ensnared in a liquidity trap. Even the economic boom from 2003 to 2007, despite being driven by a housing bubble, was lacklustre by US post-war standards.

Topics: International finance, International trade
Tags: aggregate demand, secular stagnation, trade deficit

Europe’s banking problem through the lens of secular stagnation

Jan Willem van den End , Jakob de Haan, 28 March 2014



What is the economy’s new normal? Will it be secular stagnation as suggested by Summers (2013)? According to this view, the economy will be in a permanent state of recession because aggregate demand is below potential output. As the actual real interest rate exceeds the negative equilibrium real interest rate (the natural rate), investment activity is too low.

Topics: Financial markets, Monetary policy
Tags: balance sheets, ECB, secular stagnation

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