Beyond the Liquidity Trap: the Secular Stagnation of Investment

Virgiliu Midrigan, Thomas Philippon () and Callum Jones

No 1429, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We propose an alternative view of the weak recovery of the U.S. economy in the aftermath of the Great Recession. Using a New Keynesian model with capital accumulation and an occasionally binding zero lower bound constraint on nominal interest rates, we find that the slow recovery of the U.S. economy is not driven by weak consumption and depressed asset prices as the standard liquidity trap theory would predict. Instead, the slow recovery is explained by a persistent decline in corporate investment despite favorable economic conditions, as measured by Tobin’s Q, profit rates, and funding costs. Taking into account general equilibrium effects, we show that, if investment had followed its traditional pattern, the economy would have escaped the zero lower bound by the end of 2012.

Date: 2016
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 (11)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2016/paper_1429.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1429

Access Statistics for this paper

More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().