Found 13 article(s) for author 'Sectular Stagnation'

On Secular Stagnation in the Industrialized World

On Secular Stagnation in the Industrialized World. Lawrence Summers, August 2019, Paper, “We argue that the economy of the industrialized world taken as a whole is currently – and for the foreseeable future will remain – highly prone to secular stagnation. But for extraordinary fiscal policies, real interest rates would have fallen much more and be far below their current slightly negative level, current and prospective inflation would be further short of the two percent target levels and past and future economic recoveries would be even more sluggish. We start by arguing that, contrary to current practice, neutral real interest rates are best estimated for the bloc of all industrial economies given capital mobility between them and relatively limited fluctuations in their aggregated current account. We show, using standard econometric procedures and looking at direct market indicators of prospective real rates, that neutral real interest rates have declined by at least 300 basis points over the last generation. We argue that these secular movements are in larger part a reflection of changes in saving and investment propensities rather than the safety and liquidity properties of Treasury instruments. We highlight the observation that levels of government debt, the extent of pay-as-you-go old age pensions and the insurance value of government healthcare programs have all ceteris paribus operated to raise neutral real rates. Using estimates drawn from the literature, as well as two general equilibrium models emphasizing respectively life-cycle heterogeneity and individual uncertainty, we suggest that the “private sector neutral real rate” may have declined by as much as 700 basis points since the 1970s.Link

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Whither Central Banking?

Whither Central Banking? Lawrence Summers, August 23, 2019, Opinion, “In an environment of secular stagnation in the developed economies, central bankers’ ingenuity in loosening monetary policy is exactly what is not needed. What is needed are admissions of impotence, in order to spur efforts by governments to promote demand through fiscal policies and other means.Link

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On falling neutral real rates, fiscal policy, and the risk of secular stagnation

On falling neutral real rates, fiscal policy, and the risk of secular stagnation. Lawrence Summers, March 7, 2019, Paper, “This paper demonstrates that neutral real interest rates would have declined by far more than what has been observed in the industrial world and would in all likelihood be significantly negative but for offsetting fiscal policies over the last generation. We start by arguing that neutral real interest rates are best estimated for the block of all industrial economies given capital mobility between them and relatively limited fluctuations in their collective current account. We show, using standard econometric procedures and looking at direct market indicators of prospective real rates, that neutral real interest rates have declined by at least 300 basis points over the last generation. We argue that these secular movements are in larger part a reflection of changes in saving and investment propensities rather than the safety and liquidity properties of Treasury instruments.Link

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Final Thoughts on Secular Stagnation

Final Thoughts on Secular Stagnation. Lawrence Summers, September 6, 2018, Opinion, “Too little was done in the aftermath of the financial crisis a decade ago to stimulate aggregate demand, which would be boosted by a more equal income distribution. And substantially stronger financial regulation than was in place before 2008 needs to be adopted to minimize the risks of future crises.Link

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Secular Stagnation and Macroeconomic Policy

Secular Stagnation and Macroeconomic Policy. Lawrence Summers, June 2018, Paper, “Secular stagnation theory has developed substantially recently and offers substantial insights that policymakers have yet to fully internalize. This paper reviews the considerations that led me to revive the secular stagnation idea, summarizes the theory as I understand it today, and argues that events since I started advocating the secular stagnation view have tended to confirm its predictions and reject those of its critics. It addresses the various objections, both theoretical and empirical, that have been put forward to the secular stagnation idea, and argues that if secular stagnation is a central macroeconomic issue, much of the conventional wisdom regarding macroeconomic policy needs to be rethought. Contrary to current orthodoxy, monetary policies may be able to have lasting impacts on levels of output but not to determine rates of inflation. Fiscal policies may be essential for assuring full employment and financial stability. Increases in government indebtedness may contribute to financial stability.Link

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The Fed Shouldn’t Expect People to Trust its Current Approach to the Economy

The Fed Shouldn’t Expect People to Trust its Current Approach to the Economy. Lawrence Summers, August 29, 2016, Opinion, “I had high hopes for the Federal Reserve’s annual conference in Jackson Hole, Wyo. The conference was billed as a forum that would look at new approaches to the conduct of monetary policy — something that I have been urging as necessary, given secular stagnation risks and the sharp decline in the apparent neutral rate of interest. And Chair Janet Yellen’s speech in a relatively academic setting provided an opportunity to signal that the Fed recognized that new realities required new approaches.Link

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Secular Stagnation and Monetary Policy

Secular Stagnation and Monetary Policy. Lawrence Summers, 2016, Paper. “I have been engaged in thinking, writing, provoking, and analyzing around the issue of secular stagnation: the issue of protracted sluggish growth, why it seems to be our experience, and what should be done about it.1 This paper summarizes my current thinking on those topics and reflects on the important limits monetary policy experiences in dealing with secular stagnation.Link

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A Contagious Malady? Open Economy Dimensions of Secular Stagnation

A Contagious Malady? Open Economy Dimensions of Secular Stagnation. Lawrence Summers, June 2016, Paper, “Conditions of secular stagnation – low interest rates, below target inflation, and sluggish output growth – characterize much of the global economy. We consider an overlapping generations, open economy model of secular stagnation, and examine the effect of capital flows on the transmission of stagnation. In a world with a low natural rate of interest, greater capital integration transmits recessions across countries as opposed to lower interest rates. In a global secular stagnation, expansionary fiscal policy carries positive spillovers implying gains from coordination, and fiscal policy is self-financing. Expansionary monetary policy, by contrast, is beggar-thy-neighbor with output gains in one country coming at the expense of the other. Similarly, we find that competitiveness policies including structural labor market reforms or neomercantilist trade policies are also beggar-thy-neighbor in a global secular stagnation.” Link

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