Secular stagnation and its existence in the euro area post-financial crisis
School of Business | Bachelor's thesis
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AbstractAbstract This literature review discusses the possibility of the euro area facing a secular stagnation condition – a long-term stagnation of economic growth and a decline of the natural rate of interest. Discussions of the secular stagnation have arisen after the financial crisis shook the global economy. I focus on defining the term “secular stagnation” and studying the reasons behind it, and justify my observations with an Overlapping Generations model and its application by Eggertsson, Mehrotra and Robbins (2019). I show how all the main forces behind a secular stagnation hypothesis (a decrease in population growth, a fall in productivity growth and an increase in inequality) have somewhat realised in the euro area during the past 50 years. Therefore, it is justified to conclude that the euro area can be facing a secular stagnation condition and that this condition might a “new normal”. This observation is consistent with many economists’ current arguments.
Thesis advisorMustonen, Mikko
stagnation, secular stagnation, economic growth, euro area, OLG-model, interest rates, natural rate of interest, monetary policy