Stagnation traps

Gianluca Benigno and Luca Fornaro

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to very persistent, or even permanent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth depresses aggregate demand and pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms’ investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.

Keywords: Secular Stagnation; Liquidity Traps; Growth Traps; Endogenous Growth; Multiple Equilibria. (search for similar items in EconPapers)
JEL-codes: E32 E43 E52 O42 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-06-01
New Economics Papers: this item is included in nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
http://eprints.lse.ac.uk/86241/ Open access version. (application/pdf)

Related works:
Journal Article: Stagnation Traps (2018)
Working Paper: Stagnation traps (2017)
Working Paper: Stagnation traps (2017)
Working Paper: Stagnation traps (2017)
Working Paper: Stagnation traps (2016)
Working Paper: Stagnation Traps (2016)
Working Paper: Stagnation traps (2016)
Working Paper: Stagnation Traps (2015)
Working Paper: Stagnation Traps (2015)
Working Paper: Stagnation Traps (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86241

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().