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A Model of Secular Stagnation: Theory and Quantitative Evaluation

Gauti Eggertsson (), Neil Mehrotra and Jacob Robbins
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Neil Mehrotra: Federal Reserve Bank of Minneapolis

No 742, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: This paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently low or negative natural rate of interest leading to a chronically binding zero lower bound (ZLB). Output-inflation dynamics and policy prescriptions are fundamentally different from those in the standard New Keynesian framework. Using a 56-period quantitative life cycle model, a standard calibration to US data delivers a natural rate ranging from -1.5% to -2%, implying an elevated risk of ZLB episodes for the foreseeable future. We decompose the contribution of demographic and technological factors to the decline in interest rates since 1970 and quantify changes required to restore higher rates.

Keywords: Secular stagnation; Monetary policy; Zero lower bound (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2017-09-05
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Journal Article: A Model of Secular Stagnation: Theory and Quantitative Evaluation (2019) Downloads
Working Paper: A Model of Secular Stagnation: Theory and Quantitative Evaluation (2017) Downloads
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DOI: 10.21034/wp.742

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