There has been much attention on the secular stagnation trends that have emerged in the. Now, instead of being concerned with minor adjustments to stabilize about a given trend, concern is focused on avoiding secular stagnation. Even more narrowly, i consider a shall specific variant of the secular. An appropriate policy mix that addresses eurozones secular stagnation and greeces debt supercycle seems to require a reversal of main actions. Secular stagnation has different interpretations, which complicates the debate, and the objective of this paper is to clarify the demarcation lines between various theories and to show how some of them amalgamated over time. Unlike secular stagnation, the debt supercycle is not forever. People save some portion of their income each year. Technological progress, globalization, and secular stagnation abstract.
And former treasury secretary lawrence summers calls for broad structural shifts in government policy to deal with secular stagnation. While this has not been out of choice, descartes would surely have approved. Secular stagnation is a term coined to describe a prolonged period of lower economic growth. The scary debate over secular stagnation milken institute. In the secular stagnation environment, the need for high public investment or debt is a permanent state of affairs as long as the slow. The debt supercycle versus secular stagnation he recently summarised his arguments within the article debt supercycle, not secular stagnation. After the 2008 crisis, despite economic recovery that started in 2009, the world economy has experienced a downward shift of its growth path and a consequent decline.
I will then provide a critique of the secular stagnation. The core of the theory suggests that there are phases in economic history that are characterized by increasing. Secular stagnation, debt overhang and other rationales for. In this case, the lenders do not have an incentive to reduce debt, and thus government intervention may be necessary to restore economic growth. Secular stagnation and returns on capital economic. Ultimately, while secular stagnation is a powerful metaphor for our current malaise, we dont think its useful for investing. Although would agree that some version of a debt supercycle theory is correct, i am unconvinced about rogoffs description of the mechanisms. In economics, secular stagnation is a condition when there is negligible or no economic growth in a marketbased economy. To sharpen the discussion, shall contrast i this perspectivewith another one that has gain ed currency secular stagnation. He predicted that secular stagnation would turn out to be a temporary phenomenon.
Debt supercycle in greece and secular stagnation in the. Another drag on growth is public and privately held debt. Secular stagnation, savings glut, debt supercycle, productivity led. This while private sector debt has grown relative to gdp. The debate over secular stagnation is, i be lieve, the. Facing down the debt supercycle may 2016 for institutional use only. Rather, in the words of investment manager james montier of the gmo llc, secular stagnation is a policy choice that we as citizens and policymakers can confidently attack, especially as cyclical. Aging, secular stagnation and the business cycle, wp1867. In theory, based on the analysis of the causes of the secular stagnation, the us economists put forward a series of solutions aimed at correcting the deficiencies of economic policies and implementing appropriate policy mix to improve both supplyside and demandside management. Secular stagnation theory claims that the weakness of the current expansionary phase is due to the structural trend of advanced economies towards a fall in the growth potential of per capita gdp. It is highly superficial and dangerous to argue that debt is basically free.
Secular stagnation and macroeconomic policy, mundellfleming lecture, by lawrence h. The issues surrounding the topic of secular stagnation bear on our economic outlook, on the path of interest rates, on the vulnerability of the economy to external shocks and on the. He recently summarised his arguments within the article debt supercycle, not secular stagnation. Debt supercycle, not secular stagnation rogoff the coming defaults of greece wyplosz rethinking macroeconomic policy. Live alternative perspectives 20170405 20190614 weekend reading. Prince tons paul krugman warns of the return of depression economics.
The financial crisis and alternative explanations for the. The takeaway here is that the current recovery is not an example of secular stagnation. The third part examines the current neoclassical arguments that could explain the current state of long stagnation, from the supply and the demand sides. All of these experts are expecting a future that will be very different than the. Over time, financial innovation will bypass some of the more onerous regulations. In this context, the term secular means longterm from latin saeculumcentury or lifetime, and is used in contrast to cyclical or shortterm. As shown at the beginning of this paper, this shift and growth rate stagnation are totally attributable.
The natural rate of interest and secular stagnation. Facing down the debt supercycle in a global environment of virtually unfettered debt, fixed income investors need to navigate macro risks. Secular stagnation of the us economy is depressing, but it is not inevitable. He rejected the view that the world is experiencing secular stagnation with a long future of. An appropriate policy mix that addresses eurozones secular stagnation and greeces debt supercycle seems to require a reversal of main actions, that is, the pursuit of fiscal expansion in the eurozone and the adoption of monetary expansion or debt writeoff in greece. Not all of the fallout from a severe financial crisis, however, is temporary. Secular stagnation is defined as a situation when policy interest. Summers the nature of macroeconomics has changed dramatically in the last seven years. The secular stagnation hypothesis links weak growth to a decline in natural interest rates. Secular stagnation under the fear of a government debt crisis keiichiro kobayashi kozo ueday january 16, 2018 abstract by using a model incorporating the risk of an economic crisis triggered by the accumulation of government debt, we provide a new perspective to explain the driving forces behind a secular stagnation. Debt supercycle, not secular stagnation kenneth rogoff. As reinhart and reinhart 2011 document across the worst financial crises of the second half of the 20th century, ten years after a crash, the median level of real gdp per capita is 15% below the trend predicted from the ten years prior to the crash. Rethinking secular stagnation after seventeen months. Technological progress, globalization, and secular milenko.
Secular stagnation, debt overhang and other rationales for sluggish growth, six years on by stephanie lo and kenneth rogoff abstract there is considerable controversy over why sluggish economic growth persists across many advanced economies six years after the onset of the financial crisis. Weak, postcrisis growth has been blamed on secular stagnation. Let us not have collective amnesia overly optimistic forecasts played a central role in every aspect of most countries responses to. Secular stagnation, hysteresis, and the zero lower bound lawrence h. Gdp growth has been not far from historical averages in the. Essentially, the debt supercycle is the decadeslong growth of debt from small and easilydealtwith levels, to a point where bond markets rebel. For a year and a half now i have been trying to understand what this passage means, especially the in a world where regulation has sharply curtailed access for many smaller and riskier borrowers, low sovereign bond yields do not necessarily capture the broader. This column argues that the debt supercycle view provides a more accurate. In western europe, growth was rapid and sustained in a manner not. In a time of secular stagnation, the normal relationship between saving and investment goes haywire. It suggests a change of fundamental dynamics which would play out only in its own time. Pdf the visible hand of the ecbs quantitative easing. Debt supercycle in greece and secular stagnation in the eurozone.
Although would agree that some version of a debt supercycle theory is correct. Secular stagnation under the fear of a government debt crisis. The economy seems great, but secular stagnation still lurks. Debt supercycle, not secular stagnation vox, cepr policy. Kenneth rogoff has been advancing theories that the current environment of disappointing growth rates is the result of a debt supercycle, not secular stagnation. He points to factors, such as ineffective monetary policy and weak demand for.
The hansensummers secular stagnation hypothesis is just one of five distinct hypotheses postulating a period of low growth in the medium or long term. Moreover, if debt exceeds a threshold level, the borrowers inefficiency continues indefinitely and leads the economy into a persistent stagnation. As rogoff 2016 argues, the world might be more accurately characterized as being in the grips of a debt supercycle rather than secular stagnation. As the economy recovers, the economy will be in position for a new rising phase of the leverage cycle. Rogoff posted an april 22, 2015 article on this subject, fittingly titled debt supercycle, not secular stagnation. The threat of secular stagnation has not gone away. Rogoff, kenneth, debt supercycle, not secular stagnation, 2015. The extraordinary events needed to pull the economy out of depression as well as the recent weakness suggest that it is worth considering secular stagnation. Debt supercycle, not secular stagnation vox, cepr policy portal.
Unfinishedtrying and failing to understand ken rogoff. Economists, such as larry summers have written on secular stagnation arguing the world has entered a period of substantially lower economic growth. The evidence on investment and returns on productive capital shatter the essential components of the secular stagnation hypothesis. Introduction blanchard secular stagnation in the us hall an assessment of the state of the world economy blanchard vox av besley, 28 january 2015 listen open. Download pdf save cite this item 1 a road map to progress and confusion 1 a road map to progress and confusion. Monthly report economic and financial market outlook.430 941 1221 1270 110 328 329 482 971 188 1151 435 1060 915 77 98 120 622 22 838 727 1185 77 680 850 1208 443 1212 1110 874 472 837 353 906 884 1412 865 413 98 107 479 487 169 1466 623 1280 1425 1150 137 945