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Discussing Secular Stagnation: A case for freeing good ideas from theoretical constraints?

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  • Di Bucchianico, Stefano

Abstract

This paper discusses the neoclassically-inspired Secular Stagnation Theory. Its ‘demand-side’ explanation is based on a long-run equilibrium position featuring a negative natural rate of interest. The first objective of the paper is to show that this concept is not acceptable in a neoclassical framework. This claim is made after studying plausibility of the hypotheses and logical consistency of the position in: the Euler equation, the Wicksellian/IS-LM model, the Ramsey model, and the Overlapping generations model. The second objective is to show that the long-lasting deficit-spending policy proposal, which is remarkable and should be welcomed, is inconsistent with the neoclassical framework. Without a negative natural interest rate and the zero lower bound, arguing so forcefully for deficit-spending would not be possible. The Secular Stagnation Theory can be strengthened and consistently proposed if analysis is placed outside the neoclassical framework. Demand-led models are advocated to be better equipped to account for stagnation.

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  • Di Bucchianico, Stefano, 2020. "Discussing Secular Stagnation: A case for freeing good ideas from theoretical constraints?," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 288-297.
    • Handle: RePEc:eee:streco:v:55:y:2020:i:c:p:288-297
    DOI: 10.1016/j.strueco.2020.06.002
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    Cited by:

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    2. Ciaffi, Giovanna & Deleidi, Matteo & Di Bucchianico, Stefano, 2024. "Stagnation despite ongoing innovation: Is R&D expenditure composition a missing link? An empirical analysis for the US (1948–2019)," Technological Forecasting and Social Change, Elsevier, vol. 206(C).
    3. Stefano Di Bucchianico, 2021. "Negative Interest Rate Policy to Fight Secular Stagnation: Unfeasible, Ineffective, Irrelevant, or Inadequate?," Review of Political Economy, Taylor & Francis Journals, vol. 33(4), pages 687-710, October.
    4. Peter Flaschel & Sigrid Luchtenberg & Hagen Kramer & Christian Proano & Mark Setterfield, 2021. "Contemporary Macroeconomic Outcomes: A Tragedy in Three Acts," Working Papers 2105, New School for Social Research, Department of Economics.
    5. Sergio Cesaratto & Stefano di Bucchianico, 2020. "Endogenous money and the theory of long-period effective demand," Bulletin of Political Economy, Bulletin of Political Economy, vol. 14(1), pages 1-38, June.
    6. Andrea Borsato, 2021. "Does the Secular Stagnation hypothesis match with data? Evidence from USA," Working Papers of BETA 2021-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. Andrea Borsato, 2021. "An Agent-based Model for Secular Stagnation in the USA: Theory and Empirical Evidence," LEM Papers Series 2021/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. Terranova, Roberta & Turco, Enrico M., 2022. "Concentration, stagnation and inequality: An agent-based approach," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 569-595.
    9. Barbieri Góes, Maria Cristina & Deleidi, Matteo, 2022. "Output determination and autonomous demand multipliers: An empirical investigation for the US economy," Economic Modelling, Elsevier, vol. 116(C).
    10. Di Bucchianico, Stefano, 2021. "Inequality, household debt, ageing and bubbles: A model of demand-side Secular Stagnation," IPE Working Papers 160/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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    More about this item

    Keywords

    Secular stagnation; Negative natural interest rate; Fiscal policy; Zero lower bound; Unconventional monetary policy;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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