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Short-Run Effects of Lower Productivity Growth. A Twist on the Secular Stagnation Hypothesis

Author

Listed:
  • Olivier Blanchard
  • Guido Lorenzoni
  • Jean-Paul L'Huillier

Abstract

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.

Suggested Citation

  • Olivier Blanchard & Guido Lorenzoni & Jean-Paul L'Huillier, 2017. "Short-Run Effects of Lower Productivity Growth. A Twist on the Secular Stagnation Hypothesis," NBER Working Papers 23160, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23160 Note: EFG
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    References listed on IDEAS

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    1. repec:cbo:report:45150 is not listed on IDEAS
    2. 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.
    3. Congressional Budget Office, 2014. "Revisions to CBO's Projection of Potential Output Since 2007," Reports 45150, Congressional Budget Office.
    4. Congressional Budget Office, 2014. "Revisions to CBO's Projection of Potential Output Since 2007," Reports 45150, Congressional Budget Office.
    5. Congressional Budget Office, 2014. "Revisions to CBO's Projection of Potential Output Since 2007," Reports 45150, Congressional Budget Office.
    6. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, January.
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    Cited by:

    1. repec:pal:buseco:v:52:y:2017:i:2:d:10.1057_s11369-017-0034-4 is not listed on IDEAS
    2. Fernald, John G. & Hall, Robert E. & Stock, James H. & Watson, Mark W., 2017. "The Disappointing Recovery of Output after 2009," Working Paper Series 2017-14, Federal Reserve Bank of San Francisco.
    3. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2017. "The Cyclical Sensitivity in Estimates of Potential Output," NBER Working Papers 23580, National Bureau of Economic Research, Inc.
    4. Crafts, Nicholas & Mills, Terence C, 2017. "Trend TFP Growth in the United States: Forecasts versus Outcomes," CEPR Discussion Papers 12029, C.E.P.R. Discussion Papers.
    5. repec:bin:bpeajo:v:48:y:2017:i:2017-01:p:1-81 is not listed on IDEAS
    6. repec:pal:buseco:v:52:y:2017:i:2:d:10.1057_s11369-017-0035-3 is not listed on IDEAS

    More about this item

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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