A critical analysis of the secular stagnation theory

Stefano Di Bucchianico

No 245, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: In this paper a novel critique of the neoclassical Secular Stagnation theory is presented. Focusing in particular on the ‘demand side’ explanation, it is in the first place argued for the impossibility of a longrun equilibrium position to host a negative natural interest rate, which is its main feature. The problem is theoretical and not methodological, and can be highlighted even neglecting the ‘Cambridge capital controversies’. Secondly, it is argued that, despite the label, there is not a true role for aggregate demand in determining a stagnation. It is also maintained that while the ‘supply side’ viewpoint does not suffer from these shortcomings, it cannot provide a clarification since there is no place in it for involuntary unemployment. Therefore, a demand-led alternative is advocated to be better equipped for the sake of accounting for high and persistent unemployment caused by a shortfall of aggregate demand.

Keywords: Secular Stagnation; natural interest rate; fiscal policy (search for similar items in EconPapers)
JEL-codes: E12 E13 E43 E62 (search for similar items in EconPapers)
Pages: 28
Date: 2019-02
New Economics Papers: this item is included in nep-mac and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0245

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