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.
DI BUCCHIANICO, S. (2020). Discussing Secular Stagnation: A case for freeing good ideas from theoretical constraints?. STRUCTURAL CHANGE AND ECONOMIC DYNAMICS, 55, 288-297 [10.1016/j.strueco.2020.06.002].
Discussing Secular Stagnation: A case for freeing good ideas from theoretical constraints?
Stefano Di Bucchianico
2020-01-01
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.File | Dimensione | Formato | |
---|---|---|---|
Discussing Secular Stagnation a case for freeing good ideas from theoretical constraints - SCED (2020) - Di Bucchianico Stefano.pdf
non disponibili
Tipologia:
PDF editoriale
Licenza:
NON PUBBLICO - Accesso privato/ristretto
Dimensione
1.08 MB
Formato
Adobe PDF
|
1.08 MB | Adobe PDF | Visualizza/Apri Richiedi una copia |
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
https://hdl.handle.net/11365/1118206