scholarly journals Secular Stagnation and Low Interest Rates Under the Fear of a Government Debt Crisis

2020 ◽  
Author(s):  
Keiichiro Kobayashi ◽  
Kozo Ueda
Keyword(s):  
Interest Rates ◽  
Debt Crisis ◽  
Government Debt ◽  
Secular Stagnation ◽  
Low Interest Rates

Monetary Policy and Unnatural Low Interest Rates: Secular Stagnation or Financial Repression?

2019 ◽  
Vol 70 (2) ◽  
pp. 99-135 ◽  
Author(s):  
Ad van Riet
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Real Interest Rate ◽  
Central Banks ◽  
Potential Growth ◽  
Secular Stagnation ◽  
Financial Repression ◽  
Low Interest Rates ◽  
Equilibrium Real Interest Rate

Abstract Market interest rates have been on a declining trend over the past 35 years in all advanced economies, even reaching negative territory in some European jurisdictions. This article reviews two competing explanations for the occurrence of unnatural low interest rates. The secular stagnation hypothesis of Keynesian origin maintains that persistent non-monetary factors have caused a structural excess of desired savings over planned investments which steadily pushed down the equilibrium real interest rate that is consistent with a balanced economy. Major central banks in turn failed to sufficiently lower their monetary policy rates to revive aggregate demand, leading to anaemic economic recoveries and hysteresis effects. By contrast, the financial repression doctrine argues that central banks pursued low interest rates to ease the government budget constraint and serve political objectives. The Austrian School of Economics states that this monetary easing bias sowed the seeds of repeated boom/bust cycles and created economic distortions that dragged down potential growth and the equilibrium real interest rate. The core of the debate appears to be the long-standing controversy about the desirable role for the state in guiding the economy on a higher potential growth path as opposed to relying on the efficiency of market processes in generating prosperity.

scholarly journals On secular stagnation and low interest rates: Demography matters

2019 ◽  
Vol 22 (3) ◽  
pp. 262-278 ◽  
Author(s):  
Giuseppe Ferrero ◽  
Marco Gross ◽  
Stefano Neri
Keyword(s):  
Interest Rates ◽  
Secular Stagnation ◽  
Low Interest Rates

scholarly journals Secular Stagnation in the Open Economy

2016 ◽  
Vol 106 (5) ◽  
pp. 503-507 ◽  
Author(s):  
Gauti B. Eggertsson ◽  
Neil R. Mehrotra ◽  
Lawrence H. Summers
Keyword(s):  
Interest Rates ◽  
Open Economy ◽  
Capital Markets ◽  
Capital Flows ◽  
Global Economy ◽  
Output Growth ◽  
Secular Stagnation ◽  
Positive Externalities ◽  
Neighbor Effects ◽  
Low Interest Rates

Conditions of secular stagnation--low interest rates, below target inflation, and sluggish output growth--now characterize much of the global economy. We consider a simple two-country textbook model to examine how capital markets transmit secular stagnation and to study policy externalities across countries. We find capital flows transmit recessions in a world with low interest rates and that policies that attempt to boost national saving are beggar-thy-neighbor. Monetary expansion cannot eliminate a secular stagnation and may have beggar-thy-neighbor effects, while sufficiently large fiscal interventions can eliminate a secular stagnation and carry positive externalities.

scholarly journals Structural Adjustment Programs in Turkey in terms of Income Distribution (1980-2000)

2016 ◽  
Vol 10 (2) ◽  
pp. 2007-2013
Author(s):  
Alper DOGAN
Keyword(s):  
Interest Rates ◽  
Structural Adjustment ◽  
Developing Economies ◽  
Debt Crisis ◽  
Policy Reforms ◽  
Structural Adjustment Programs ◽  
Adjustment Program ◽  
Low Interest Rates ◽  
In The Beginning ◽  
Adjustment Programs

The major obstacle for the instable and developing economies of the developing countries were seen as governmentintervention in the economy. This led to debt crisis for emergency economies in the beginning of 1980s in which theamount of loans they borrowed with low interest rates increased very fast after rising interest rates. This problem gavenew objectives to the IMF and the World Bank to stabilize those economies under deficit pressures with a more profoundand comprehensive package of policy reforms which is known by its famed name, Structural Adjustment Programs. Thephilosophy was the minimalization of the state via trade and financial liberalizations. However, the last situation indicatesthat there is a certain income gap among different states and this seems like a big dilemma concerning the globalizedworld after SAPs. And this study tried to explain one of the transition periods of the globalization in Turkey under the WorldBank-IMF co-operated structural adjustment program in the early 1980s and the effect of the program on incomedistribution in Turkey until 2001 crisis.

scholarly journals The Macroeconomic Effects of European Debt Crisis and Turkey

2015 ◽  
Author(s):  
Ahmet Ulusoy ◽  
Mehmet Ela
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Sovereign Debt ◽  
Global Financial Crisis ◽  
Debt Crisis ◽  
Banking Regulation ◽  
Sovereign Debt Crisis ◽  
Private Debt ◽  
European Sovereign Debt Crisis ◽  
Low Interest Rates

European sovereign debt crisis is the period that because of low interest rates, government and private debt increased substantially and also financial crisis transform private debt to high sovereign debt. In this period, low interest rates made government borrowing cost cheap and so sovereign debt increased considerably. In same period, private sector consumption and debt rose and this induced the housing bubbles. The expansionary fiscal policy against the effects of global financial crisis and bail-outs given to banks which are problematic made the sovereign debt highest and debt burden unsustainable for some countries. European sovereign debt crisis affect the world globally with the financial and economic links. Countries implemented fiscal and monetary policies against the recession and unemployment. In this respect, it is worthwhile researching the European sovereign debt crisis which is multifaceted and complex and offering suggestions for Turkey. Turkey must maintain the strong fiscal position and increased country resilience against crisis. And Turkey must also maintain banking regulation and supervision which are intended to steady financial sector. The aim of this paper is analyzing the development of European sovereign debt crisis and its effects; and also emphasizing the actions Turkey can take and offering suggestions for Turkey.

scholarly journals Reasons for the Demise of Interest: Savings Glut and Secular Stagnation or Central Bank Policy?

2021 ◽  
Vol 24 (1) ◽  
Author(s):  
Thomas Mayer ◽  
Gunther Schnabl
Keyword(s):  
Interest Rates ◽  
Capital Investment ◽  
Business Cycle Theory ◽  
Secular Stagnation ◽  
Soft Budget Constraints ◽  
Austrian Business Cycle Theory ◽  
Low Interest Rates ◽  
Austrian Business Cycle ◽  
Ex Nihilo ◽  
Fixed Capital Investment

This article compares the Keynesian, neoclassical and Austrian expla-nations for low interest rates and sluggish growth. From a Keynesian and neoclassical perspective, low interest rates are attributed to aging societies, which save more for the future (global savings glut). Low growth is linked to slowing population growth and a declining marginal efficiency of investment as well as to declining fixed capital investment due to digitalization (secular stagnation). In contrast, from the perspective of Austrian business cycle theory, interest rates were decreased step by step by central banks to stimulate growth. This paralyzed investment and lowered growth in the long term. This study shows that the ability of banks to extend credit ex nihilo and the requirement of time to produce capital goods invalidates the permanent IS identity assumed in the Keynesian theory. Furthermore, it is found that there is no empirical evidence for the hypotheses of a global savings glut and secular stagnation. Instead, low growth can be explained by the emergence of quasi “soft budget constraints” as a result of low interest rates, which reduce the incentive for banks and enterprises to strive for efficiency.

scholarly journals Is zero the safe real rate?

2021 ◽  
Vol 16 (2) ◽  
Author(s):  
Andreas Mix
Keyword(s):  
Central Bank ◽  
Interest Rates ◽  
Economic History ◽  
Market Forces ◽  
Short Term ◽  
Real Rate ◽  
Equity Prices ◽  
Secular Stagnation ◽  
Low Interest Rates ◽  
History Of

The current economic debate with regards to the secular trend of ever lower, even negative, safe real interest rates is dominated by Keynesian, neoclassical and Austrian explanations. The former (two) argue that the interdependence phenomena of a global savings glut and a secular stagnation cause an oversupply of savings and thus drive down rates. From this position, central bank merely react to market forces. The latter dissent and argue that it was rather the other way around and an asymmetric central bank policy aimed at propping up equity prices led to the secular stagnation now quoted for its justification. In contrast, from the perspective of a critique of ideology, safe real rates where neither driven down by market forces nor central banks but by the weight of being not reasonably safe but riskless. Specifically, I argue that by equating the riskless return with the short-term interest rate, Black and Scholes (1973) state a tautology and imply that both rates shall be zero. In the subsequent inquiry, I show that this argument allows for a neat narration of the economic history of the neoliberal age. Furthermore, I explain why under current conditions ultra low interest rates fail to translate into inflation.

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