[go: up one dir, main page]

IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23160.html
   My bibliography  Save this paper

Short-Run Effects of Lower Productivity Growth. A Twist on the Secular Stagnation Hypothesis

Author

Listed:
  • Olivier Blanchard
  • Guido Lorenzoni
  • Jean-Paul L'Huillier
Abstract
Since 2010, U.S. GDP growth has been anemic, averaging 2.1% a year, and this despite interest rates very close to zero. Historically, one would have expected such low sustained rates to lead to much stronger demand. They have not. For a while, one could point to plausible culprits, from a weak financial system to fiscal consolidation. But, as time passed, the financial system strengthened, fiscal consolidation came to an end, and still growth did not pick up. We argue that this is due, in large part, not to legacies of the past but to lower optimism about the future, more specifically to downward revisions in forecast potential growth. Put simply, the anticipation of a less bright future is leading to temporarily weaker demand. If our explanation is correct, it has important implications for policy and for forecasts. It may weaken the case for secular stagnation, as it suggests that the need for very low interest rates may be partly temporary.

Suggested Citation

  • Olivier Blanchard & Guido Lorenzoni & Jean-Paul L'Huillier, 2017. "Short-Run Effects of Lower Productivity Growth. A Twist on the Secular Stagnation Hypothesis," NBER Working Papers 23160, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23160
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23160.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Olivier J. Blanchard & Jean-Paul L'Huillier & Guido Lorenzoni, 2013. "News, Noise, and Fluctuations: An Empirical Exploration," American Economic Review, American Economic Association, vol. 103(7), pages 3045-3070, December.
    2. Congressional Budget Office, 2014. "Revisions to CBO's Projection of Potential Output Since 2007," Reports 45150, Congressional Budget Office.
    3. Congressional Budget Office, 2014. "Revisions to CBO's Projection of Potential Output Since 2007," Reports 45150, Congressional Budget Office.
    4. Congressional Budget Office, 2014. "Revisions to CBO's Projection of Potential Output Since 2007," Reports 45150, Congressional Budget Office.
    5. Congressional Budget Office, 2014. "Revisions to CBO's Projection of Potential Output Since 2007," Reports 45150, Congressional Budget Office.
    6. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jeff Mollins & Pierre St-Amant, 2018. "The Productivity Slowdown in Canada: an ICT Phenomenon?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 35, pages 95-112, Fall.
    2. Claude Bismut & Ismael Ramajo, 2019. "Nominal and real interest rates in OECD countries," CEE-M Working Papers hal-02355139, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    3. Di Bella, Gabriel & Grigoli, Francesco, 2019. "Optimism, pessimism, and short-term fluctuations," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 79-96.
    4. David Byrne & Stephen D. Oliner & Daniel E. Sichel, 2017. "Prices of high-tech products, mismeasurement, and the pace of innovation," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(2), pages 103-113, April.
    5. John G. Fernald & Robert E. Hall & James H. Stock & Mark W. Watson, 2017. "The Disappointing Recovery of Output after 2009," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 1-81.
    6. Gianluca Benigno & Luca Fornaro, 2018. "Stagnation Traps," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1425-1470.
    7. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2018. "The Cyclical Sensitivity in Estimates of Potential Output," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 343-441.
    8. Paul Beaudry & Tim Willems, 2022. "On the Macroeconomic Consequences of Over-Optimism," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(1), pages 38-59, January.
    9. James Hebden & J. David López-Salido, 2018. "From Taylor's Rule to Bernanke's Temporary Price Level Targeting," Finance and Economics Discussion Series 2018-051, Board of Governors of the Federal Reserve System (U.S.).
    10. Crafts, Nicholas & Mills, Terence C., 2017. "Trend TFP Growth in the United States: Forecasts versus Outcomes," CAGE Online Working Paper Series 329, Competitive Advantage in the Global Economy (CAGE).
    11. Claude Bismut & Ismael Ramajo, 2019. "Nominal and real interest rates in OECD countries," Working Papers hal-02355139, HAL.
    12. Daragh Clancy & Lorenzo Ricci, 2022. "Economic sentiments and international risk sharing," International Economics, CEPII research center, issue 169, pages 208-229.
    13. Daragh Clancy & Lorenzo Ricci, 2019. "Loss aversion, economic sentiments and international consumption smoothing," Working Papers 35, European Stability Mechanism.
    14. Mr. Jiaqian Chen & Lucyna Gornicka, 2020. "Measuring Output Gap: Is It Worth Your Time?," IMF Working Papers 2020/024, International Monetary Fund.
    15. Claudio Borio, 2017. "Secular stagnation or financial cycle drag?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(2), pages 87-98, April.
    16. Tang, Jianmin & Wang, Weimin, 2020. "Technological frontier, technical efficiency and the post-2000 productivity slowdown in Canada," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 12-25.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Régis Barnichon & Christian Matthes & Alexander Ziegenbein, 2018. "The Financial Crisis at 10: Will We Ever Recover?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    2. Laurence Ball, 2014. "Long-term damage from the Great Recession in OECD countries," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(2), pages 149-160, September.
    3. John G. Fernald, 2015. "Productivity and Potential Output before, during, and after the Great Recession," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 1-51.
    4. William D. Craighead, 2019. "Hysteresis In A New Keynesian Model," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 1082-1097, April.
    5. Manuel Gonzalez-Astudillo, 2017. "GDP Trend-cycle Decompositions Using State-level Data," Finance and Economics Discussion Series 2017-051, Board of Governors of the Federal Reserve System (U.S.).
    6. David Kiefer & Ivan Mendieta-Muñoz & Codrina Rada & Rudiger von Arnim, 2020. "Secular Stagnation and Income Distribution Dynamics," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(2), pages 189-207, June.
    7. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2017. "Secular Stagnation: Policy Options and the Cyclical Sensitivity in Estimates of Potential Output," Working Papers 01/2017, National Bank of Ukraine.
    8. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2018. "The Cyclical Sensitivity in Estimates of Potential Output," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 343-441.
    9. Willem Van Zandweghe, 2015. "Monetary Policy Shocks and Aggregate Supply," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 31-56.
    10. U. Devrim Demirel, 2020. "Labor Market Effects of Tax Changes in Times of High and Low Unemployment: Working Paper 2020-05," Working Papers 56522, Congressional Budget Office.
    11. Flavia Dantas & L. Randall Wray, 2017. "Full Employment: Are We There Yet?," Economics Public Policy Brief Archive ppb_142, Levy Economics Institute.
    12. Omar Licandro & Francesca Vinci, 2021. "Potential output, the Taylor Rule and the Fed," Discussion Papers 2021/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    13. Fontanari, Claudia & Palumbo, Antonella & Salvatori, Chiara, 2020. "Potential Output in Theory and Practice: A Revision and Update of Okun's Original Method," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 247-266.
    14. Flavia Dantas, 2016. "Normalizing the Fed Funds Rate: The Fed’s Unjustified Rationale," Economics Working Paper Archive wp_876, Levy Economics Institute.
    15. Francesca Vinci & Omar Licandro, 2020. "Switching-track after the Great Recession," Discussion Papers 2020/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    16. Valerie Vandermeulen & Werner Roeger, 2021. "Trend Capital when Goods and Capital Market Frictions Exist," European Economy - Discussion Papers 145, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    17. Howes, Candace & Singh, Ajit, 1995. "Long-term trends in the World economy: The gender dimension," World Development, Elsevier, vol. 23(11), pages 1895-1911, November.
    18. Christopher A. Pissarides, 2003. "Unemployment in Britain: A European Success Story," CESifo Working Paper Series 981, CESifo.
    19. Michael Bruno, 1994. "Stabilization and Reform in Eastern Europe: A Preliminary Evaluation," NBER Chapters, in: The Transition in Eastern Europe, Volume 1, Country Studies, pages 19-50, National Bureau of Economic Research, Inc.
    20. Di Bella, Gabriel & Grigoli, Francesco, 2019. "Optimism, pessimism, and short-term fluctuations," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 79-96.

    More about this item

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:23160. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.