Long-Lasting Consequences of the European Crisis

35 Pages Posted: 8 Aug 2015

See all articles by Juan F. Jimeno

Juan F. Jimeno

Banco de España - Research Department; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: August 7, 2015

Abstract

The Great Recession and the subsequent European crisis may have long-lasting effects on aggregate demand, aggregate supply and, hence, on macroeconomic performance over the medium and long run. Besides the fact that financial crises last longer and are succeeded by slower recoveries, and apart from the hysteresis effects that may operate after episodes of long-term unemployment, the combination of high (public and private) debt and low population and productivity growth may create significant constraints for monetary and fiscal policies. In this paper I develop an OLG model, one earlier used by Eggertsson and Mehrotra (2014) to rationalise the "secular stagnation hypothesis", to show how high debt and low population and productivity growth may condition the macroeconomic performance of some European countries over the medium and long run.

Keywords: natural rate of interest, zero lower bound, population and productivity growth, inter-generational transfers, secular stagnation.

JEL Classification: E20, E43, E52, E66

Suggested Citation

Jimeno, Juan F., Long-Lasting Consequences of the European Crisis (August 7, 2015). Banco de Espana Working Paper No. 1522, Available at SSRN: https://ssrn.com/abstract=2640896 or http://dx.doi.org/10.2139/ssrn.2640896

Juan F. Jimeno (Contact Author)

Banco de España - Research Department ( email )

Alcala 48
28014 Madrid
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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