 Belief-driven growth slowdowns and zero-bounded risk-free rateThe North American Journal of Economics and Finance, 2022, vol. 59, issue C Abstract: The literature presents mounting evidence that global long-run growth has been declining since the recession of 2008. Thus, to explore possible reasons for the growth slowdown and its risk-free rate and risk premium implications, this study constructs an endogenous growth model to examine the US economy before the 2008 recession and during the subsequent recovery period. The model features technological externalities that imply multiple perfect foresight balanced growth paths. In this setup, a change in agents’ beliefs may trigger persistent slumps, low interest rates, and elevated risk premium, consistent with the recent US experience. Numerically, using the Epstein and Zin preferences, the model calibration suggests that the historical data moments can be accommodated by persistent regimes and high intertemporal elasticity of substitution. Notably, the study’s simple-structured model with multiplicity and a regime-switching structure is a preliminary contribution to the field of economics, paving the way for future empirical studies. Keywords: Endogenous growth; Secular stagnation; Sunspots; Risk-free rate; Risk returns (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:59:y:2022:i:c:s1062940821001996 DOI: 10.1016/j.najef.2021.101600 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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