Short-run effects of lower productivity growth.A twist on the secular stagnation hypothesis

Olivier Blanchard, Guido Lorenzoni () and Jean-Paul L'Huillier

No 1705, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: Since 2010, U.S. GDP growth has been anemic, averaging 2.1% a year, and this despite interest rates very close to zero. Historically, one would have expected such low sustained rates to lead to much stronger demand. They have not. For some time, one could point to plausible culprits, from a weak financial system to fiscal consolidation. But, as time passed, the financial system strengthened, fiscal consolidation came to an end, and still growth did not pick up. We argue that this is due, in large part, not to legacies of the past but to lower optimism about the future, more specifically to downward revisions in forecast potential growth. Put simply, the anticipation of a less bright future is leading to temporarily weaker demand. If our explanation is correct, it has important implications for policy and for forecasts. It may weaken the case for secular stagnation, as it suggests that the need for very low interest rates may be partly temporary.

Pages: 16 pages
Date: 2017, Revised 2017-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Short-run effects of lower productivity growth. A twist on the secular stagnation hypothesis (2017)
Working Paper: Short-Run Effects of Lower Productivity Growth: A Twist on the Secular Stagnation Hypothesis (2017)
Working Paper: Short-Run Effects of Lower Productivity Growth. A Twist on the Secular Stagnation Hypothesis (2017)
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