International finance

Simon Wren-Lewis, 30 January 2015

The anaemic recovery from the Global Crisis and the downward trend in real interest rates since 1980 have revived interest in the idea of secular stagnation. This column argues that if the US, UK, and Eurozone had not pursued contractionary fiscal policies from 2010 onwards, the recovery would not have been so slow and nominal interest rates would no longer be at the zero lower bound. Expanding the stock of government debt would have ameliorated, not worsened, the shortage of safe assets.

Paul De Grauwe, 30 January 2015

Nowhere in the developed world is the secular stagnation more visible than in the Eurozone. This column explains this phenomenon with asymmetric external balances within the Eurozone. Southern counties had accumulated current-account deficits and became debtors when the Crisis hit, whereas the northern ones became creditors. The burden of the adjustments has been borne almost exclusively by the debtor countries creating a deflationary bias. Suggested fiscal policy prescriptions are government investment programmes, to be implemented by northern countries (and in particular, Germany).

Coen Teulings, 30 January 2015

To many observers, the long-lasting, underwhelming performance of growth, employment and investment suggests that something fundamental has changed with the way advanced economies’ macroeconomies are working. One leading explanation – the notion of ‘Secular Stagnation’ – has gained traction among some economists and policymakers while being rejected by others. This column opens a Vox Debate on Secular Stagnations which will involve frequent, invited ‘Lead Commentaries’ on all issues surrounding concept and its implications for policy, analysis and research. 

Axel Gottfries, Coen Teulings, 30 January 2015

The secular stagnation hypothesis has gained traction in the aftermath of the Global Crisis. This column argues that demography has played an important role in reducing the interest rates. 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. The latter will go into price increases for assets in fixed supply – such as housing – rather than in adding new capital. Potential remedies for absorbing the extra savings are increasing the retirement age and an extension of the pay-as-you-go benefit systems.       

Theodore H. Moran, 30 January 2015

Joining international supply chains has help some developing nations industrialise while leaving others by the wayside. This column discusses research that extract lessons from four case studies. It suggests the key to success is combining pro-active investment promotion with customised infrastructure improvements and public-private vocational training that allow investors to fit production from a novel site seamlessly into the company’s international supplier network.

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