Discussion Paper Series 2015-E-5

Wall of Worries: Reflections on the Secular Stagnation Debate

Barry Eichengreen

This paper offers some reflections on the debate over secular stagnation. It expresses doubts about explanations for the secular decline in real interest rates and economic growth rates that emphasize the possibility of a global savings glut attributable to the rapid growth of emerging markets and increases in income inequality in the advanced economies. It invokes historical evidence to question whether the commercial potential of new advances in technology have been exhausted. The most convincing explanation for the observed excess of desired saving over desired investment and corresponding low level of real interest rates, it concludes, is probably a sharp, ongoing fall in the relative price of investment goods since the middle of the 20th century. Whether this decline will continue is uncertain. The bottom line is that the case for secular stagnation is at best unproven.

Keywords: Secular stagnation; Real interest rates; Economic growth

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

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