On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
Brookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationnationtukasz Rachel, LSE and Bank of England Lawrence H. Summers, Harvard UniversityConflict of Interest Disclosure: Lukasz Rachel is a senior economist at the Bank of England and a Pill) candidate at the London School of Economics. Lawrence Summers is the Charles w. Eliot Professor and President Em On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationeritus at Harvard University. Beyond these affiliations, the authors did not receive financial support from any firm or person for this paper or fromOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
any firm or person with a financial or political interest in this paper. They are currently not officers, directors, or board members of any organizatBrookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnatione of the authors, and do not necessarily reflect those of the Bank of England, the London School of Economics, or Harvard University.On falling neutral real rates, fiscal policy, and the risk of secular stagnation*Lulcasz RachelLawrence H. SummersLSE and Bank of EnglandHarvard43528Abst radThis demon On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationstrates t hat neutral real interest rates would haw declined by far more than what has Iwen observed in the industrial world and would in all likelihoOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
od la-significantly negative but for offsetting fiscal policies over the last generation. We start by arguing that neutral real interest rates are besBrookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationent, account. We show, using standard econometric procedures and looking at direct market, indicators of prospective real rates, that neutral real interest rates have declined by at least 300 basis points over the last generation. We argue that, these secular movements arc in larger part a reflectio On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationn of changes in saving and investment propensities rather than the safety and liquidity properties of Treasury instruments. We then point out that theOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
movements in the neutral real rate reflect both developments in the private sector and in public policy. Wc highlight the levels of government debt, Brookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationtral real rates. Using estimates drawn from the literal me, as well as two general equilibrium models emphasizing respectively lifecycle heterogeneity and idiosyncratic risks, we suggest that the “private sector neutral real rate" may have declined by as much as 7(M) basis points since the 1970s. Ou On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationr findings support the idea that, absent offsetting policies, mature industrial economics arc prone to secular stagnation. This raises profound questiOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
ons about stabilization policy going forward. Achievement of levels of deficits and government debt generally considered desirable -especially if compBrookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationed to engage in some combination of greater tolerance of budget deficits, unconventional monetary policies and structural measures to promote private investment and absorb private saving if full employment is to be maintained and inflation targets arc to be hit.Keywords: equilibrium real interest ra On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationte: R*; secular stagnation; fiscal policy; govern ment debt: social security: healthcare costs; life-cycle; heterogeneity: incomplete markets; precautOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
ionary saving.•ĨEL Classification: EO, F3, Fl, 1'6.*e><: l.p.rachel'0lse.ac.nk; lhsofficeỡlawrencefmmment.com. The views expressed here are solely of Brookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationconomics at Harvard University, where much of this project was completed during his visit as a Fulbright Fellow. He expresses his gratitude to the US-ƯK Fulbright Commission for financial support.11 IntroductionWhat is the interest rat e that is consistent with st able macroeconomic performance of a On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation modern, developed economy? Few questions can rival this one in its difficulty and importance. Equilibrium real interest rates are unobservable; theyOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
are affected by a wide swathe of macroeconomic forces, lx)t h domestic and global; and are not invariant to policy regimes. All those factors make theBrookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationsess t he state of t he economy, predict the fut ure trends, and set policy appropriately.The secular stagnat ion debate refocused attent ion on t his important issue by pointing towards the downward trend in long-term interest rates across the developed world over the past four decades (Summers (20 On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation15), Teulings and Baldwin (2011)). This decline, which started well before the financial crisis, is broad-based, both across countries and across asseOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
t classes. Yields on long-maturity inflation-protected government, securities have been trending down since at least the early 1990s. and have hoveredBrookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationhe t ime-varying liquidity and safety premia, are close to 0% in real terms (Figure 2). More broadly, a large share of the decline in risk-free rates has been mirroreel in risky asset, returns, such as rates of return on corporate bonds and on cquites: not .withstanding some volatility, spreads have On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation remained close to long-run historical averages (Figure 3).Policymakers have taken notice. Federal Reserve ('hairman .Jerome Powell s recent remark thOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
at t he nominal federal funds rate at the time set at between 2-2.25% was “just below the bivatl Tange of estimates of the level that would be neutralBrookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationrates for a long time. the central bank has engaged in aggressive monetary easing including directly targeting long-term interest rates (Kuroda (2010)). Similarly. European policymakers highlighted the equilibrium rate of interest as the key policy variable (Const.âncio (2016); Draghi (2016)), while On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation the recent. ECB paper concluded that “most of estimates of ỈÌ* for the euro area have been negative regardless of the type of model used”.The facts tOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
hat (i) estimates of the decline in neutral short real rates on highly liquid securit ies track declines in yields on relat ively illiquid government Brookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationing classes; (iii) the magnitude of the estimated decline in real rates far exceeds the level let alone the change in spreads leads us to believe t hat for t he purpose of analyzing longterm trend movements in neutral or equilibrium real rates it is appropriate to focus on factors relating to saving On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation and investment, propensities rather than issues of liquidity or risk. This is (he approach taken in what follows.’‘Appendix A provides some further dOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
iscussion of safety and liquidity premium.2Figure 1: Real interest rates estimated from the inflation-linked bonds in advanced economies and in the UnBrookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation-protected government debt securities across the G7 excluding Italy. Data arc from DataStrcam and form an imbalanced panel. In particular, the Figure relies on the UK inflation-indexed gilts in the early part of the .sample. The US TIPS yield is the yield on a constant, maturity 10-year TYoasury Inf On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationlat ion-Indexed Security, retrieved from FRED, Federal Reserve Bank of St. Louis (code DF1110).Research to date has largely focused on the analysis ofOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
neutral rates for individual countries.2 In this literature, the decline in the safe interest rates in advanced economics is a robust finding across Brookings PapersON ECONOMIC ACTIVITYBPEA Conference Drafts, March 7-8, 2019On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagn On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationablished that a time-series model and a structural general equilibrium model both detect a downward trend in (he equilibrium rate of interest in the United Slates since the mid-1990s.3 Internationally, Kat hryn Holston, Thomas Laubach and John Williams (2017b) applied the seminal methodology of Laub On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnationach and Williams (2003) to four advanced economies (United St ates. Canada. Emo Area and the United Kingdom), and found that the decline in the real rOn-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation
ate of interest is present in each of them. However estimating neut ral real rates for individual open economies is a questionable procedure since itGọi ngay
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