Understanding the sources of secular stagnation

Summary

The project will explore the role of various channels, such as productivity growth and demographics, in driving secular stagnation. Secular stagnation manifest itself in lower long-run growth and interest rates. The ultimate aim of the project is to guide macroeconomic policy to respond appropriately to secular stagnation.

Researchers

Project background and aims

“Understanding the Sources of Secular Stagnation” is a collaborative effort which brings together Dr Benjamin Wong, from the Department of Econometrics and Business Statistics at the Monash Business School, and Professor James Morley and Dr Yunjong Eo, both from the University of Sydney. The project is funded by the Australian Research Council Discovery Program and will examine the phenomenon “secular stagnation”, which is related to lower long-run projections of output, inflation, and interest rates. Understanding secular stagnation is important because long-run growth prospects is a crucial ingredient for improving and sustaining the living standards of Australians. At the same time, persistently low interest rates of the recent past may also fuel imbalances in the Australian economy. Low interest rates also limit the room for the Reserve Bank of Australia to manage a future economic downturn.

Many different hypothesis have been put forward to the causes of secular stagnation, including slowing productivity growth productivity growth, financial shocks, demographics, and inflation expectations. The goal of the project is to understand these causes, which can in turn guide macroeconomic policy to respond to responses to secular stagnation.

As part of the project, we also aim to improve econometric techniques for detecting structural breaks and conducting trend-cycle decomposition with large Bayesian vector autoregressive models, which will also support future applied research on changes in the behaviour and long-run forecasts of macroeconomic and other time series variables.

Funding information

Australian Research Council DP190100202 (2019-2022)