Discussing Secular Stagnation: A case for freeing good ideas from theoretical constraints?

Stefano Di Bucchianico

Structural Change and Economic Dynamics, 2020, vol. 55, issue C, 288-297

Abstract: This paper discusses the neoclassically-inspired Secular Stagnation Theory. Its ‘demand-side’ explanation is based on a long-run equilibrium position featuring a negative natural rate of interest. The first objective of the paper is to show that this concept is not acceptable in a neoclassical framework. This claim is made after studying plausibility of the hypotheses and logical consistency of the position in: the Euler equation, the Wicksellian/IS-LM model, the Ramsey model, and the Overlapping generations model. The second objective is to show that the long-lasting deficit-spending policy proposal, which is remarkable and should be welcomed, is inconsistent with the neoclassical framework. Without a negative natural interest rate and the zero lower bound, arguing so forcefully for deficit-spending would not be possible. The Secular Stagnation Theory can be strengthened and consistently proposed if analysis is placed outside the neoclassical framework. Demand-led models are advocated to be better equipped to account for stagnation.

Keywords: Secular stagnation; Negative natural interest rate; Fiscal policy; Zero lower bound; Unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: E12 E13 E58 E62 E63 H12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:55:y:2020:i:c:p:288-297

DOI: 10.1016/j.strueco.2020.06.002

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