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Aging, Secular Stagnation and the Business Cycle

Author

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  • Callum Jones

Abstract

As of 2015, U.S. log output per capita was 12 percent below what its pre-2008 linear trend would predict. To understand why, I develop and estimate a model of the US with demographics, real and monetary shocks, and the occasionally binding ZLB on nominal rates. Demographic changes generate slow-moving trends in the real interest rate, employment, and productivity. I find that demographics alone can explain one-third of the gap between log output per capita and its linear trend in 2015. Demographics also lowered real rates, causing the ZLB to bind between 2009 and 2015, contributing to the slow recovery after the Great Recession.

Suggested Citation

  • Callum Jones, 2018. "Aging, Secular Stagnation and the Business Cycle," IMF Working Papers 18/67, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:18/67
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    Cited by:

    1. Gauti B. Eggertsson & Neil R. Mehrotra & Jacob A. Robbins, 2019. "A Model of Secular Stagnation: Theory and Quantitative Evaluation," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(1), pages 1-48, January.
    2. Papetti, Andrea, 2019. "Demographics and the natural real interest rate: historical and projected paths for the euro area," Working Paper Series 2258, European Central Bank.
    3. Luis M. Cubeddu & Signe Krogstrup & Gustavo Adler & Pau Rabanal & Mai Chi Dao & Swarnali A Hannan & Luciana Juvenal & Carolina Osorio Buitron & Cyril Rebillard & Daniel Garcia-Macia & Callum Jones & J, 2019. "The External Balance Assessment Methodology: 2018 Update," IMF Working Papers 19/65, International Monetary Fund.
    4. Stefano Neri & Andrea Gerali, 2017. "Natural rates across the Atlantic," Temi di discussione (Economic working papers) 1140, Bank of Italy, Economic Research and International Relations Area.
    5. Brand, Claus & Bielecki, Marcin & Penalver, Adrian, 2018. "The natural rate of interest: estimates, drivers, and challenges to monetary policy JEL Classification: E52, E43," Occasional Paper Series 217, European Central Bank.

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