A Model of Secular Stagnation: Theory and Quantitative Evaluation

Gauti B. Eggertsson · Neil Mehrotra · Jacob A. Robbins

405 citations0/0 files storedAmerican Economic Journal Macroeconomics

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

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).Output-inflation dynamics and policy prescriptions are fundamentally different from those in the standard New Keynesian framework.Using a 56-period quantitative life cycle model, a standard calibration to US data delivers a natural rate ranging from -1.5% to -2%, implying an elevated risk of ZLB episodes for the foreseeable future.We decompose the contribution of demographic and technological factors to the decline in interest rates since 1970 and quantify changes required to restore higher rates.

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References

1992A Contribution to the Empirics of Economic Growth 2005Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy 1995Automobile Prices in Market Equilibrium 2015The second machine age: work, progress, and prosperity in a time of brilliant technologies 2013The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market 1958An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money 2010Review of Economic Studies 1994Uninsured Idiosyncratic Risk and Aggregate Saving

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2021Global Waves of Debt: Causes and Consequences 2019Global trends in interest rates 2017Monetary Policy in a Low Interest Rate World 2023Market Power and Innovation in the Intangible Economy 2023Fiscal Policy under Low Interest Rates 2019On Secular Stagnation in the Industrialized World

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