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Short-Run Effects of Lower Productivity Growth. A Twist on the Secular Stagnation Hypothesis

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

No 23160, NBER Working Papers from National Bureau of Economic Research, Inc

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 a while, 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.

JEL-codes: E1 E24 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017-02
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Published as Olivier Blanchard & Guido Lorenzoni & Jean-Paul L’Huillier, 2017. "Short-run effects of lower productivity growth. A twist on the secular stagnation hypothesis," Journal of Policy Modeling, .

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