A model of secular stagnation

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Abstract

Japan’s two-decade-long malaise and the Great Recession have renewed interest in the secular stagnation hypothesis, but until recently this theory has not been explicitly formalised. This chapter explains the core logic of a new model that does just that. In the model, an increase in inequality, a slowdown in population growth, and a tightening of borrowing limits all reduce the equilibrium real interest rate. Unlike in other recent models, a period of deleveraging puts even more downward pressure on the real interest rate so that it becomes permanently negative.

Citation

Eggertsson, Gauti B., and Neil Mehrotra. “A Model of Secular Stagnation.” VoxEU - CEPR, August 15, 2014.

@online{eggertsson_mehrotra_2014,
  author       = {Eggertsson, Gauti B. and Mehrotra, Neil},
  title        = {A Model of Secular Stagnation},
  year         = {2014},
  month        = {August},
  url          = {https://cepr.org/voxeu/columns/model-secular-stagnation},
  note         = {Accessed: ...}
}