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SECULAR STAGNATION, R&D, PUBLIC INVESTMENT, AND MONETARY POLICY: A GLOBAL-MODEL PERSPECTIVE
Published online by Cambridge University Press: 30 September 2019
Abstract
We evaluate the global macroeconomic effects of cross-country-coordinated fiscal and monetary policies to counterbalance secular stagnation by simulating a five-region New Keynesian model of the world economy, calibrated to the United States (US), the euro area, Japan, China, and the rest of the world. The model includes investment in research and development (R&D) as a key factor affecting global growth. Our main findings are as follows. First, unfavorable technology developments may have played a nontrivial role in the global growth slowdown. Second, secular stagnation can be more effectively counterbalanced by coordinating global fiscal and monetary measures encouraging R&D accumulation. Third, these coordinated measures provide a larger welfare gain relative to a unilateral fiscal expansion.
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Footnotes
We thank for useful suggestions an anonymous referee, Nicholas Bloom, Ines Buono, Ayhan Kose, Gian Maria Milesi-Ferretti, Dominik Thaler, and participants at the Bank of Italy workshop on “Secular Stagnation and Financial Cycles” (March 2017), the University of Milan-Polytechnic University of Marche Conference on “Finance and Economic Growth in the Aftermath of the Crisis” (September 2017), the Annual Meeting of the Italian Economic Association (October 2017), the “EAGLE Network” Meeting of the Eurosystem Working Group on Econometric Modeling (December 2017), the 5th World Bank-Bank of Spain “Macroeconomic Policies, Output Fluctuations, and Long-Term Growth” Research Conference (June 2018), and the Bank of Canada “Bridging Gaps in Global Policy Modelling” Workshop (July 2018). The views expressed in this paper are those of the authors alone and should not be attributed to the Bank of Italy, the Eurosystem, or the World Bank. Any remaining errors are the sole responsibility of the authors.
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