Stagnation Traps

Luca Fornaro and Gianluca Benigno

No 810, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to permanent, or very persistent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms' investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.

Date: 2015
New Economics Papers: this item is included in nep-ino, nep-mac and nep-pke
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Stagnation Traps (2018)
Working Paper: Stagnation traps (2017)
Working Paper: Stagnation traps (2017)
Working Paper: Stagnation traps (2016)
Working Paper: Stagnation Traps (2016)
Working Paper: Stagnation traps (2016)
Working Paper: Stagnation traps (2016)
Working Paper: Stagnation Traps (2015)
Working Paper: Stagnation Traps (2015)
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