Maybe it had something to do with their respective policy recommendations. Hansens hypothesis has been brought back to life by larry summers in his november 20 secular stagnation speech. This idea was termed the secular stagnation hypothesis. E31,e32,e52 abstract we propose an overlapping generations new keynesian model in which a permanent or very persistent. He has analyzed trade cycles, as well as he has suggested the measures regarding sustained economic growth. With a somewhat different list of factors in mind, the harvard economist alvin hansen labeled the failure of private investment to fully absorb private savings secular stagnation because of the threat that it would mean insufficient demand. Hansen s idea was that there was a shortage of impetus to invest such that there would not be adequate demand to absorb all of the saving. Ben bernanke looks at the question of whether the u. If these conditions also prevail in the neighborhood of the. Four observations on secular stagnation 67 announces a 2% inflation target, the actual rate of inflation will fall short of 2 %, even if everyone believes the bank s promise which they will not do for very long, in any case. Secular stagnation is a term coined to describe a prolonged period of lower economic growth. A striking example is the growing use of highpowered computers and radically new software in material science.
The term secular stagnation, coined by american keynesian alvin hansen in the late 1930s, has always had a polarising effect among economists, and the. Secular stagnation and the zero lower bound this brings us to the secular stagnation hypothesis put forward by hansen 1939. This return of the secular stagnation hypothesis occurred in november 20, when. Summers theory of secular stagnation a term first used by the economist alvin hansen back in 1938 holds that, in the united states, the desire to save chronically outweighs the desire. Noted harrod 1939, 1948 very close to hansen sweezy1943, 1972 and higgins were critical of the term secular stagnation consistent with rising incomes and tech progress klein 1947 on the negative natural rate of interest clarifying the meaning of secular stagnation. The cepr press ebook on secular stagnation has been viewed over 80,000 times since it was published on 15 august 2014. Hansen argued that, due to certain structural characteristics such as the declining. Hansen reckoned the slumping economies of the 1930s were doomed to stagnation by poor growth prospects, a product of. The economist explains what it means to suffer from. The phrase secular stagnation was first introduced by alvin hansen in a speech he prepared for the aea meetings in 1938. Facts, causes and cures edited by coen teulings and richard baldwin centre for economic policy research 77 bastwick street, london ec1v 3pz tel. April 14, 2017 abstract this paper formalizes and quanti. Economic fluctuations and growth, monetary economics conditions of secular stagnation low interest rates, below target inflation, and sluggish output growth now characterize much of the global economy. The rediscovery of secular stagnation on 8 november 20, at an imf conference in honour of stanley fisher, lawrence summers revived the doctrine of secular stagnation, an expression introduced by alvin hansen 1934, 1938, 1939.
When secular stagnation is mentioned, the term is usually correctly attributed to alvin hansens 1938 aea presidential address 1939. While matters are still far from clear, the events since then lead us to regard secular stagnation as a significant threat to advanced countries. The economies of the industrial world, in this view, suffer from an imbalance resulting from an increasing propensity to save and a decreasing propensity to invest. Four observations on secular stagnation pierre ratcliffe. Hansen, a harvard economist, was worried that slower population growth and a slower rate of technological progress would. One of the main driving forces of secular stagnation, according to hansen, was a decline in the birth rate and an oversupply of savings that was suppressing aggregate demand. Introduced by alvin hansen in the 1930s, the theory of secular stagnation focused initially on the weakness of demographic growth and the decline in productivity. This article summarizes the case for new approaches to macroeconomics by highlighting important structural changes in the economy of the industrial world, explains the secular stagnation view, and draws some policy implications. The economics of secular stagnation secular stagnation. It suggests a change of fundamental dynamics which would play out only in its own time. Soon after hansens address, the second world war led to a massive increase in.
Secular stagnation requires rethinking macroeconomic. Im not entirely sure why this was the case, especially in light of the subsequent popularity of keynesian theory. In this context, the term secular means longterm, and is used in contrast to cyclical or shortterm. The terms bronze ages and iron age signify their importance. The basic notion behind secular stagnation is this that the capitalistic economy is basically characterized with instability. The secular stagnation debate since the popularisation of the term by summers in his 20 speech at the imf economic forum 1, a single definition of secular stagnation has yet to be agreed.
Though the consensus around what secular stagnation means is loose, one factor almost everyone agrees on is the lack of population growth that concerned hansen has. Hansens secular stagnation hypothesis was largely forgotten over time. The honest broker 20151012 the scary debate over secular stagnation 20151001 is secular stagnation a monetaryfinancial problem or a fundamentaltechnological problem. Secular stagnation hansens thesis features secular. The third part examines the current neoclassical arguments that could explain the current state of long stagnation, from the supply and the demand sides. The disappointing recovery following the 2008 great financial crisis has brought to life alvin hansens thesis of the late 1930s. Hansen was manifestly wrong, in the sense that what prevailed after he wrote those words in 1939 was by no stretch secular stagnation. Secular stagnation is a phrase coined in 1938 by the economist alvin hansen to describe extended periods of economic malaise. The implications of secular stagnation financial times. Back then, hansen pinpointed demographic factors as a major cause of secular stagnation. If you havent read the speech, i recommend that you doits an interesting and easy read. Gordon alvin hansen 1939 popularized the term secular stagnation, and we are now, at the suggestion of larry summers 2014, considering the application of hansens term to the current us economy, because the pace of out. Alvin hansen introduced the notion of secular stagnation in the 1930s.
A model of secular stagnation bank for international. Thus, for example, if the natural rate of interest is 4%, then there is no equilibrium that is consistent with inflation below 4% in steady state. February 5, 2020 october 12, 2017 by tejvan pettinger. The economist explains what it means to suffer from secular stagnation. Rethinking macroeconomic policy after the great recession, a volume containing the papers and discussions we organized at a peterson institute conference held 18 months ago. The secular stagnation project will shed light on and explore policy responses to a pressing worldwide issue, which up to this point, has received limited rigorous study. The supply side of secular stagnation refers to potential real gdp. The us must work on its economic relationship with china. The pdf remains freely downloadable, but as the european debate on secular stagnation is moving into policy circles, we decided to also make it a kindle book.
Alvin hansens secular stagnation hypothesis centralbanks. In 1938, nine years after the beginning of the great depression, alvin hansen delivered. In economics, secular stagnation is a condition when there is negligible or no economic growth in a marketbased economy. But he was wrong in way he still might be right after all. Summers suggested that perhaps hansen might just have uttered his. Six years after the global crisis, the recovery is still anaemic despite years of nearzero interest. Murray 2012 documents changes in social indicators for the. Suppose that the economy really needs a 4% inflation target. Ben bernanke and larry summers are in a blog war over. Gordon alvin hansen 1939 popularized the term secular stagnation, and we are now, at the suggestion of larry summers 2014, considering the application of hansen s term to the current us economy, because the pace of out. This is a short revision video on some of the causes of secular stagnation in many advanced developed countries. Consumer motivation in developed economies with secular. Low equilibrium real rates, financial crisis, and secular stagnation. Secular stagnation institute for new economic thinking.
The concept was originally put forth by alvin hansen in 1938. In this context, the term secular means longterm from latin saeculumcentury or lifetime, and is used in contrast to cyclical or shortterm. Economists, such as larry summers have written on secular stagnation arguing the world has entered a period of substantially lower economic growth. Note that, in the secular stagnation steady state, the zero lower bound and the downward wage rigidity are both binding and the price of capital p t k is equal to 1. Secular stagnation and macroeconomic policy mundellfleming lecture international monetary fund.
Hansen believed that the world was not experiencing a down period during an upanddown series of fluctuations. Before we delve into the secular stagnation debate a debate that has become a hot topic a few words about current economic developments in the u. Regular readers of this blog are aware that we have been referring to the risk of a long period of very low interest rates and subdued growth before. Alternatively, tim taylor provides a concise and accurate summary here. The standard economic models are not equipped to address this unique interest rate environment and the situation presents multiple lines of inquiry that deserve exploration.
Active demand management sounds more appealing than dismantling trade unions, i suppose. A model of secular stagnation vox, cepr policy portal. On secular stagnation in the industrialized world brookings. Ben bernanke and larry summers are in a blog war over secular stagnation. In such an attempt summers has been backed up by paul krugman, who brought up again his contribution about the japanese stagnation of the lost decade. The term secular stagnation originated with alvin hansen in the late 1930s. Secular stagnation and wealth inequality house of debt. A third possible explanation for secular stagnation, due originally to hansen 1938, is that the rate of investment is being dragged down by a low rate of population growth, as first the advanced economies and now emerging markets undergo the demographic transition to slower rates of natural increase. It was coined by a harvard university economist, alvin hansen, in 1938. The term secular stagnation meaning longterm stagnation isnt new. A model of secular stagnation 127 inflation, which can be no lower than the negative of the natural rate of interest. Reflections on secular stagnation princeton university. Eprs secular stagnation and the euro area members research service page 3 of 8 box 1 alvin hansen on secular stagnation not until the problem of full employment of our productive resources from the long run, secular standpoint was upon us, were we compelled to give.
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