Short-Run Effects of Lower Productivity Growth. A Twist on the Secular Stagnation Hypothesis
Since 2010, U.S. GDP growth has been anemic, averaging 2.1% a year, and this despite interest rates very close to zero. Historically, one would have expected such low sustained rates to lead to much stronger demand. They have not. For a while, one could point to plausible culprits, from a weak financial system to fiscal consolidation. But, as time passed, the financial system strengthened, fiscal consolidation came to an end, and still growth did not pick up. We argue that this is due, in large part, not to legacies of the past but to lower optimism about the future, more specifically to downward revisions in forecast potential growth. Put simply, the anticipation of a less bright future is leading to temporarily weaker demand. If our explanation is correct, it has important implications for policy and for forecasts. It may weaken the case for secular stagnation, as it suggests that the need for very low interest rates may be partly temporary.
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|Date of creation:||Feb 2017|
|Publication status:||published as Olivier Blanchard & Guido Lorenzoni & Jean-Paul L’Huillier, 2017. "Short-run effects of lower productivity growth. A twist on the secular stagnation hypothesis," Journal of Policy Modeling, .|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Olivier J. Blanchard & Jean-Paul L'Huillier & Guido Lorenzoni, 2013.
"News, Noise, and Fluctuations: An Empirical Exploration,"
American Economic Review,
American Economic Association, vol. 103(7), pages 3045-3070, December.
- Olivier J. Blanchard & Jean-Paul L'Huillier & Guido Lorenzoni, 2009. "News, Noise, and Fluctuations: An Empirical Exploration," NBER Working Papers 15015, National Bureau of Economic Research, Inc.
- Olivier J. Blanchard & Jean-Paul L’Huillier & Guido Lorenzoni, 2012. "News, Noise, and Fluctuations: An Empirical Exploration," Development Research Working Paper Series 09/2012, Institute for Advanced Development Studies.
- Jean-Paul L'Huillier & Guido Lorenzoni & Olivier Blanchard, 2011. "News, Noise, and Fluctuations: An Empirical Exploration," 2011 Meeting Papers 969, Society for Economic Dynamics.
- Jean-Paul L'Huillier & Guido Lorenzoni & Olivier J. Blanchard, 2009. "News, Noise and Fluctuations: An Empirical Exploration," 2009 Meeting Papers 99, Society for Economic Dynamics.
- Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, October. Full references (including those not matched with items on IDEAS)