Secular stagnation: Facts, causes, and cures – a new Vox eBook

Coen Teulings, Richard Baldwin 15 August 2014

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Economic growth is still anaemic despite years of zero interest rates.

  • Is ‘secular stagnation’ to blame? What does secular stagnation really mean? And if it’s for real, what must be done?

Today, VoxEU.org launches an eBook that gathers the views of leading economists including Summers, Krugman, Gordon, Blanchard, Koo, Eichengreen, Caballero, Glaeser and a dozen others (edited by Coen Teulings and me). Collectively, the chapters suggest that something historic is afoot.

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  interest rates, US, Europe, Japan, investment, macroeconomics, Great Recession, zero lower bound, savings, secular stagnation, SecStag debate

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

Claudio Borio, Piti Disyatat 25 June 2014

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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).

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Topics:  Financial markets Global crisis Monetary policy

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

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

Douglas L. Campbell 15 April 2014

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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. This has led economists such as Larry Summers to argue that the US may have entered a period of secular stagnation characterised by a prolonged shortfall in aggregate demand. Such shortfalls, Summers asserts, call for very aggressive stabilisation policies just to ensure normal growth.

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Topics:  International finance International trade

Tags:  trade deficit, secular stagnation, aggregate demand

Europe’s banking problem through the lens of secular stagnation

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

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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. In the secular stagnation view, the zero lower bound (ZLB) prevents an adjustment of the interest rate to the (negative) equilibrium rate. Consequently, the economy ends up in a liquidity trap (Krugman 2013).

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Topics:  Financial markets Monetary policy

Tags:  ECB, balance sheets, secular stagnation

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