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A critical analysis of the secular stagnation theory

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  • Stefano Di Bucchianico

Abstract

In this paper a novel critique of the neoclassical Secular Stagnation theory is presented. Focusing in particular on the ‘demand side’ explanation, it is in the first place argued for the impossibility of a longrun equilibrium position to host a negative natural interest rate, which is its main feature. The problem is theoretical and not methodological, and can be highlighted even neglecting the ‘Cambridge capital controversies’. Secondly, it is argued that, despite the label, there is not a true role for aggregate demand in determining a stagnation. It is also maintained that while the ‘supply side’ viewpoint does not suffer from these shortcomings, it cannot provide a clarification since there is no place in it for involuntary unemployment. Therefore, a demand-led alternative is advocated to be better equipped for the sake of accounting for high and persistent unemployment caused by a shortfall of aggregate demand.

Suggested Citation

  • Stefano Di Bucchianico, 2019. "A critical analysis of the secular stagnation theory," Departmental Working Papers of Economics - University 'Roma Tre' 0245, Department of Economics - University Roma Tre.
    • Handle: RePEc:rtr:wpaper:0245
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    File URL: http://dipeco.uniroma3.it/db/docs/wp%20245.pdf
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    More about this item

    Keywords

    Secular Stagnation; natural interest rate; fiscal 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
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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