Hostname: page-component-848d4c4894-xfwgj Total loading time: 0 Render date: 2024-06-20T16:58:46.193Z Has data issue: false hasContentIssue false
  • English
  • Français

SECULAR STAGNATION, R&D, PUBLIC INVESTMENT, AND MONETARY POLICY: A GLOBAL-MODEL PERSPECTIVE

Published online by Cambridge University Press:  30 September 2019

Pietro Cova ,
Alessandro Notarpietro ,
Patrizio Pagano  and
Massimiliano Pisani
Pietro Cova
Affiliation:
Bank of Italy
Alessandro Notarpietro*
Affiliation:
Bank of Italy
Patrizio Pagano
Affiliation:
World Bank
Massimiliano Pisani
Affiliation:
Bank of Italy
*
Address correspondence to: Alessandro Notarpietro, Bank of Italy, Directorate General for Economics, Statistics and Research, Via Nazionale 91, 00184 Rome, Italy. e-mail: alessandro.notarpietro@bancaditalia.it. Phone: +39 06 4792 2623.
Get access Rights & Permissions [Opens in a new window]

Abstract

We evaluate the global macroeconomic effects of cross-country-coordinated fiscal and monetary policies to counterbalance secular stagnation by simulating a five-region New Keynesian model of the world economy, calibrated to the United States (US), the euro area, Japan, China, and the rest of the world. The model includes investment in research and development (R&D) as a key factor affecting global growth. Our main findings are as follows. First, unfavorable technology developments may have played a nontrivial role in the global growth slowdown. Second, secular stagnation can be more effectively counterbalanced by coordinating global fiscal and monetary measures encouraging R&D accumulation. Third, these coordinated measures provide a larger welfare gain relative to a unilateral fiscal expansion.

Keywords

DSGE ModelingSecular StagnationPublic InvestmentMonetary Policy
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 5 , July 2021 , pp. 1267 - 1287
Copyright
© Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank for useful suggestions an anonymous referee, Nicholas Bloom, Ines Buono, Ayhan Kose, Gian Maria Milesi-Ferretti, Dominik Thaler, and participants at the Bank of Italy workshop on “Secular Stagnation and Financial Cycles” (March 2017), the University of Milan-Polytechnic University of Marche Conference on “Finance and Economic Growth in the Aftermath of the Crisis” (September 2017), the Annual Meeting of the Italian Economic Association (October 2017), the “EAGLE Network” Meeting of the Eurosystem Working Group on Econometric Modeling (December 2017), the 5th World Bank-Bank of Spain “Macroeconomic Policies, Output Fluctuations, and Long-Term Growth” Research Conference (June 2018), and the Bank of Canada “Bridging Gaps in Global Policy Modelling” Workshop (July 2018). The views expressed in this paper are those of the authors alone and should not be attributed to the Bank of Italy, the Eurosystem, or the World Bank. Any remaining errors are the sole responsibility of the authors.

References

REFERENCES

Anzoategui, D., Comin, D., Gertler, M. and Martinez, J. (2019) Endogenous technology adoption and R&D as sources of business cycle persistence. American Economic Journal: Macroeconomics, American Economic Association , 11(3), 67–110.Google Scholar
Bayoumi, T., Faruqee, H., Laxton, D., Karam, P. D., Rebucci, A., Lee, J., Hunt, B. L. and Tchakarov, I. (2004) GEM: A New International Macroeconomic Model. IMF Occasional Papers: No. 239.CrossRefGoogle Scholar
Benigno, G. and Fornaro, L. (2018) Stagnation traps. Review of Economic Studies 85(3), 1425–1470.CrossRefGoogle Scholar
Bianchi, F., Kung, H. and Morales, G. (2019) Growth, slowdowns, and recoveries. Journal of Monetary Economics 101(C), 47–63.CrossRefGoogle Scholar
Bloom, N., Jones, C. I., Van Reenen, J. and Webb, M. (2017) Are Ideas Getting Harder to Find? NBER Working Papers: No. 23782.Google Scholar
Calvo, G. A. (1983) Staggered prices in a utility-maximizing framework. Journal of Monetary Economics 12(3), 383–398.CrossRefGoogle Scholar
Conference Board (2015) Global productivity growth stuck in the slow lane with no signs of recovery in sight. Total Economy Database - Key Findings, New York: Conference Board.Google Scholar
Draghi, M. (2017) Fostering Innovation and Entrepreneurship in the Euro area. Welcome address by Mario Draghi, President of the ECB, at the joint March 2017 conference by the ECB and the MIT Lab for Innovation Science and Policy.Google Scholar
Eggertsson, G. B., Mehrotra, N. R., Singh, S. R. and Summers, L. H. (2016) A contagious malady? Open economy dimensions of secular stagnation. IMF Economic Review 64(4), 581–634.CrossRefGoogle Scholar
Eichengreen, B. (2015) Secular stagnation: The long view. American Economic Review 105(5), 66–70.CrossRefGoogle Scholar
Everaert, L. and Schule, W. (2008) Why it pays to synchronize structural reforms in the euro area across markets and countries. IMF Staff Papers 55(2), 356–366.CrossRefGoogle Scholar
Faruqee, H., Laxton, D., Muir, D. and Pesenti, P. A. (2007) Smooth landing or crash? Model-based scenarios of global current account rebalancing. NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pp. 377–456. National Bureau of Economic Research, Inc. CrossRefGoogle Scholar
Gordon, R. J. (2015) Secular stagnation: A supply-side view. American Economic Review 105(5), 54–59.CrossRefGoogle Scholar
Hansen, A. (1939) Economic progress and declining population growth. American Economic Review 29(1), 1–15.Google Scholar
International Monetary Fund (2014) Is it time for an infrastructure push? The macroeconomic effects of public investment. World Economic Outlook, chapter 3.Google Scholar
Leith, C., Moldovan, I. and Rossi, R. (2012) Optimal monetary policy in a new Keynesian model with habits in consumption. Review of Economic Dynamics 15(3), 416–435.CrossRefGoogle Scholar
Pesenti, P. (2008) The Global Economy Model (GEM): Theoretical framework. IMF Staff Papers 55(2), 243–284.CrossRefGoogle Scholar
Rotemberg, J. J. (1982) Monopolistic price adjustment and aggregate output. Review of Economic Studies 49(4), 517–531.CrossRefGoogle Scholar
Santacreu, A. M. and Zhu, H. (2018) Manufacturing and service sector roles in the evolution of innovation and productivity. Economic Synopses 2, 1–3.Google Scholar
Summers, L. H. (2014) U.S. Economic Prospects: Secular stagnation, hysteresis, and the zero lower bound. Business Economics 49(2), 65–73.CrossRefGoogle Scholar
Summers, L. H. (2015) Demand side secular stagnation. American Economic Review 105(5), 60–65.CrossRefGoogle Scholar
The World Bank (2018) Box 1.1. Long-term Growth Prospects: Downgraded No More? Global Economic Prospects 8.Google Scholar
Supplementary material: PDF

Cova et al. supplementary material

Cova et al. supplementary material

Download Cova et al. supplementary material(PDF)
PDF 1.3 MB