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Secular Stagnation: Evidence and Implications for Economic Policy

Author

Listed:
  • Łukasz Rawdanowicz

    (OECD)

  • Romain Bouis

    (OECD)

  • Kei-Ichiro Inaba

    (OECD)

  • Ane Kathrine Christensen

    (OECD)

Abstract

This paper investigates whether OECD countries are facing secular stagnation. Secular stagnation is defined as a situation when policy interest rates bounded at zero fail to stimulate demand sufficiently, due to low or negative neutral real interest rates and low inflation, and when ensuing prolonged and subdued growth undermines potential growth via labour hysteresis and discouraged investment. Obtaining firm evidence is complicated by considerable uncertainties surrounding estimates of economic slack and its impact on inflation, crisis-related hit to potential output and neutral interest rates. However, signs of secular stagnation are most evident in the euro area, particularly in the vulnerable members, in contrast to the United States and the United Kingdom, where evidence is less firm. Japan is arguably in the advanced stage of secular stagnation that started almost two decades ago. In countries with symptoms of secular stagnation, more monetary and fiscal stimulus should be accompanied by structural reforms to boost potential growth and neutral rates. Evidence on hysteresis effects strengthens the case for accommodative policies. In general, the large uncertainty about the size and persistence of hysteresis and risks associated with certain measures pose policy dilemmas and call for a comprehensive policy response. Stagnation séculaire : Evidences et répercussions sur la politique économique Ce document cherche à déterminer si les pays de l’OCDE sont dans une stagnation séculaire. La stagnation séculaire désigne une situation dans laquelle les taux d’intérêt directeurs nuls ne parviennent pas à stimuler suffisamment la demande, en raison de taux d’intérêts réels neutres bas ou négatifs et d’une inflation faible, conjugués à une croissance durablement atone qui affaiblit la croissance potentielle via des effets d’hystérèse sur le marché du travail et un investissement découragé. Obtenir des évidences robustes est difficile du fait des incertitudes considérables entourant les estimations de la sous-utilisation des capacités de production et de son impact sur l’inflation, des effets négatifs de la crise sur la production potentielle et des taux d’intérêt neutres. Toutefois, les signes de stagnation séculaire sont les plus flagrants dans la zone euro, surtout dans les États membres vulnérables, contrairement aux États-Unis et au Royaume-Uni où les évidences sont moins tranchées. Le Japon se trouve probablement en phase avancée de stagnation séculaire, qui a débuté il y a près de vingt ans. Dans les pays montrant des signes de stagnation séculaire, de nouvelles mesures de relance monétaire et budgétaire devraient s’accompagner de réformes structurelles destinées à stimuler la croissance potentielle et les taux neutres. Les effets d’hystérèse plaident en faveur de politiques accommodantes. De manière générale, les incertitudes importantes entourant l’ampleur et la persistance des effets d’hystérèse et les risques associés à certaines mesures posent des dilemmes en termes de politique et nécessitent une réponse politique globale.

Suggested Citation

  • Łukasz Rawdanowicz & Romain Bouis & Kei-Ichiro Inaba & Ane Kathrine Christensen, 2014. "Secular Stagnation: Evidence and Implications for Economic Policy," OECD Economics Department Working Papers 1169, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1169-en
    as

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    File URL: http://dx.doi.org/10.1787/5jxvgg6q27vd-en
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Les pays avancés font-ils face à une stagnation séculaire ?
      by ? in D'un champ l'autre on 2014-11-28 01:58:00

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    Cited by:

    1. Annabelle Mourougane, 2017. "Crisis, potential output and hysteresis," International Economics, CEPII research center, issue 149, pages 1-14.
    2. Kleczka, Mitja, 2015. "Monetary Policy, Fiscal Policy, and Secular Stagnation at the Zero Lower Bound. A View on the Eurozone," MPRA Paper 67228, University Library of Munich, Germany.
    3. repec:rjr:romjef:v::y:2017:i:1:p:167-190 is not listed on IDEAS
    4. repec:eee:inecon:v:112:y:2018:i:c:p:238-250 is not listed on IDEAS
    5. repec:nbr:nberch:13962 is not listed on IDEAS
    6. Fatás, Antonio & Summers, Lawrence H., 2018. "The permanent effects of fiscal consolidations," Journal of International Economics, Elsevier, vol. 112(C), pages 238-250.
    7. repec:wfo:wstudy:57899 is not listed on IDEAS
    8. Thomas Leoni, 2015. "Welfare state adjustment to new social risks in the post-crisis scenario. A review with focus on the social investment perspective," WWWforEurope Working Papers series 89, WWWforEurope.

    More about this item

    Keywords

    inflation; inflation; monetary policy; neutral interest rates; politique monétaire; potential output; production potentielle; secular stagnation; stagnation séculaire; taux d’intérêt neutres;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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