Publications

Forthcoming, American Economic Journal: Macroeconomics
January 2019
Abstract: This paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently low or negative natural rate of interest leading to a chronically binding zero lower bound (ZLB). Output-inflation dynamics and policy prescriptions are fundamentally different from those in the standard New Keynesian framework. Using a 56-period quantitative life cycle model, a standard calibration to US data delivers a natural rate ranging from −1.5% to −2%, implying an elevated risk of ZLB episodes for the foreseeable future. We decompose the contribution of demographic and technological factors to the decline in interest rates since 1970 and quantify changes required to restore higher rates.

Related:
An earlier version, revised and incorporated into Eggertsson, Mehrotra and Robbins (2019)

A Model of Secular Stagnation (with Gauti Eggertsson)
August 2014
Chapter 10 in C. Teulings and R. Baldwin, eds., Secular Stagnation: Facts, Causes, and Cures, Center for Economic Policy Research, Vox EU.org eBook, 2014.

Press Coverage:
Bloomberg View (October 20, 2016)
Ben Bernanke's Blog (March 31, 2015)
Business Insider (January 20, 2015)
Vox (October 28, 2014)
Washington Post (October 23, 2014)
Equitablog (October 22, 2014)
Marginal Revolution (October 21, 2014)
Financial Times (October 20, 2014)
CNBC (August 12, 2014)
The New York Times (June 11, 2014)
Bloomberg View (April 21, 2014)
CNBC (April 17, 2014) 
Paul Krugman Blog (April 9, 2014)

Fiscal Policy Stabilization: Purchases or Transfers?
International Journal of Central Banking, Vol. 14(2), pp. 1-49
March 2018
Abstract: Both government purchases and transfers figure prominently in the use of fiscal policy for counteracting recessions. However, existing representative agent models including the neoclassical and New Keynesian benchmark rule out transfers by assumption. This paper explains the factors that determine the size of fiscal multipliers in a variant of the Curdia and Woodford (2010) model where transfers now matter. I establish an equivalence between deficit-financed fiscal policy and balanced-budget fiscal policy with transfers. Absent wealth effects on labor supply, the transfer multiplier is zero when prices are flexible, and transfers are redundant to monetary policy when prices are sticky. The transfer multiplier is most relevant at the zero lower bound where the size of the multiplier is increasing in the debt elasticity of the credit spread and fiscal policy can influence the duration of a zero lower bound episode. These results are quantitatively unchanged after incorporating wealth effects on labor supply.

A Contagious Malady? Open Economy Dimensions of Secular Stagnation (with Gauti Eggertsson, Sanjay Singh, and Lawrence Summers)
IMF Economic Review, Vol. 64(4), pp. 581-634
December 2016
Abstract: Conditions of secular stagnation - low interest rates, below target inflation, and sluggish output growth - characterize much of the global economy. We consider an overlapping generations, open economy model of secular stagnation, and examine the effect of capital flows on the transmission of stagnation. In a world with a low natural rate of interest, greater capital integration transmits recessions across countries as opposed to lower interest rates. In a global secular stagnation, expansionary fiscal policy carries positive spillovers implying gains from coordination, and fiscal policy is self-financing. Expansionary monetary policy, by contrast, is beggar-thy-neighbor with output gains in one country coming at the expense of the other. Similarly, we find that competitiveness policies including structural labor market reforms or neomercantilist trade policies are also beggar-thy-neighbor in a global secular stagnation.

Press Coverage:
Washington Post (July 7, 2016)
Paul Krugman's Blog (June 20, 2016)
Economist's View (June 7, 2016)

American Economic Review, Papers and Proceedings, Vol. 106(5), pp. 503-507
April 2016
Abstract: 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 trigger current account surpluses 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.

Press Coverage:
WSJ Capital Account (April 20, 2016)
Equitablog (June 21, 2016)