Secular Stagnation: Theory and Remedies
| Autor: | Jean-Baptiste Michau |
|---|---|
| Přispěvatelé: | Département d'Économie de l'École Polytechnique (X-DEP-ECO), École polytechnique (X), SEYDI, Mariame |
| Jazyk: | angličtina |
| Rok vydání: | 2015 |
| Předmět: |
Inflation
Economics and Econometrics Labour economics Secular stagnation media_common.quotation_subject Zero lower bound Economic stagnation Secular stagnation theory JEL: E - Macroeconomics and Monetary Economics/E.E3 - Prices Business Fluctuations and Cycles/E.E3.E31 - Price Level • Inflation • Deflation Liquidity trap 0502 economics and business Economics JEL: E - Macroeconomics and Monetary Economics JEL: E - Macroeconomics and Monetary Economics/E.E6 - Macroeconomic Policy Macroeconomic Aspects of Public Finance and General Outlook/E.E6.E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy • Stabilization • Treasury Policy 050207 economics Real interest rate [SHS.ECO] Humanities and Social Sciences/Economics and Finance JEL: E - Macroeconomics and Monetary Economics/E.E1 - General Aggregative Models/E.E1.E12 - Keynes • Keynesian • Post-Keynesian media_common 050208 finance JEL: E - Macroeconomics and Monetary Economics/E.E6 - Macroeconomic Policy Macroeconomic Aspects of Public Finance and General Outlook/E.E6.E62 - Fiscal Policy Monetary and fiscal policy Keynesian economics 05 social sciences Monetary policy [SHS.ECO]Humanities and Social Sciences/Economics and Finance Nominal interest rate |
| Popis: | This paper relies on a Ramsey model with money to o¤er a simple theory of secular stagnation. The permanent failure of the economy to produce at full capacity results from three features: (i) The combination of the zero lower bound on the nominal interest rate and of an in ‡ation ceiling imposes a lower bound on the real interest rate; (ii) Some dynastic households have a high propensity to save, due to a preference for wealth; (iii) A downward wage rigidity breaks the de ‡ationary spiral resulting from the lack of demand. In this framework, I derive the paradox of ‡exibility, of thrift, and of toil. If the in ‡ation ceiling cannot be raised, then the government needs to rely on …scal policy to escape secular stagnation. However, a conventional …scal stimulus is not an e¢ cient response to a permanent liquidity trap, and can even be welfare reducing. The solution is instead to tax household wealth and to subsidize income from physical capital, through an investment subsidy or a reduction in the taxation of corporate income. This optimal policy is revenue neutral and implements the …rst-best allocation of resources. However, to avoid a jump in the price level upon implementation of the optimal policy, the government needs to redeem the money that had previously been supplied to …nance public de…cits. |
| Databáze: | OpenAIRE |
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