Growth, Secular Stagnation and Wealth Preference
28 Pages Posted: 1 Sep 2015
Date Written: September 1, 2015
In 1960s-1980s Japan enjoyed high economic growth. In the early 1990s, however, the growth rate drastically declined and thereafter Japan has been suffering secular stagnation. This paper proposes a dynamic macroeconomic model that can consistently explain such a drastic change in economic performance. Wealth preference plays an important role. In the early stage consumption grows at the same pace as productivity increases. Once consumption reaches a certain level, however, it deviates from the full-employment level and aggregate demand deficiency appears. After that the economic growth rate asymptotically approaches zero even if productivity keeps on increasing, and secular stagnation arises.
Keywords: Long-run stagnation, aggregate demand deficiency, wealth preference, fair wages, economic growth, deflationary gap, zero interest rates
JEL Classification: E32, E13
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