A Model of Secular Stagnation

Gauti Eggertsson and Neil R. Mehrotra

No 20574, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-mac
Note: ME
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Citations: View citations in EconPapers (219)

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Working Paper: A Model of Secular Stagnation (2015)
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