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Secular stagnation, R&D, public investment and monetary policy: a global-model perspective

Author

Listed:
  • Pietro Cova

    () (Bank of Italy)

  • Patrizio Pagano

    () (Bank of Italy)

  • Alessandro Notarpietro

    () (Bank of Italy)

  • Massimiliano Pisani

    () (Bank of Italy)

Abstract

We evaluate the global macroeconomic effects of fiscal and monetary policy measures to counterbalance secular stagnation by simulating a five-region New Keynesian model of the world economy, calibrated to the United States (US), the euro area (EA), Japan (JP), China (CH), and the rest of the world (RW). The model includes investment in research and development (R&D) as a factor that affects global growth. Our main findings are as follows. First, a negative efficiency shock to R&D in the main advanced economies partially replicates the observed slowdown in long-term global growth and the decrease in interest rates. Second, in the medium- and long-term, the increase in US public investment favours global growth; in the short-term, it stimulates US economic activity but reduces foreign activity. Third, in the US an accommodative monetary stance, which provokes the crowding-in effect, amplifies the short-term macroeconomic effectiveness of public investment, without inducing additional negative spillovers. Fourth, EA, JP, and CH, by simultaneously increasing public investment and adopting an accommodative monetary policy, counterbalance US short-run negative spillovers and further enhance long-term world growth.

Suggested Citation

  • Pietro Cova & Patrizio Pagano & Alessandro Notarpietro & Massimiliano Pisani, 2017. "Secular stagnation, R&D, public investment and monetary policy: a global-model perspective," Temi di discussione (Economic working papers) 1156, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1156_17
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    DSGE models; secular stagnation; open-economy macroeconomics; public investment; monetary policy;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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