A Model of Secular Stagnation

Gauti Eggertsson and Neil R. Mehrotra
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Neil R. Mehrotra: Brown University (E-mail: neil_mehrotra@brown.edu)

No 15-E-09, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: We propose an overlapping generations New Keynesian model in which a permanent (or very persistent) slump is possible without any self- correcting force to full employment. The trigger for the slump is a deleveraging shock, which creates an oversupply of savings. Other forces that work in the same direction and can both create or exacerbate the problem include a drop in population growth, an increase in income inequality, and a fall in the relative price of investment. Our model sheds light on the long persistence of the Japanese crisis, the Great Depression, and the slow recovery out of the Great Recession. It also highlights several implications for policy.

Keywords: Secular stagnation; monetary policy; zero lower bound (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: A Model of Secular Stagnation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:15-e-09

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