Secular Trends and Technological Progress

50 Pages Posted: 2 Jan 2018

See all articles by Robin Döttling

Robin Döttling

Rotterdam School of Management, Erasmus University

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR); Tinbergen Institute

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Date Written: December 2017

Abstract

Can technological progress explain secular stagnation? We show how an excess of savings over investment arises when innovative production requires creative human capital rather than physical investment. Innovating firms cannot own human capital so they need less investment financing, but need to ensure the commitment of human capital by rewarding it gradually over time. Over time, as innovators are granted a rising income share, the supply of investable assets falls. The general equilibrium effect is declining corporate leverage, a gradual fall in interest rates and rising asset valuations. The concomitant rise in house prices and wage inequality leads to higher household leverage and mortgage default risk. We show that only a redistributive productivity shift can account for a fall in physical investment in the context of falling interest rates, consistent with major economic and financial trends since 1980.

Keywords: excess savings, House Prices, Human Capital, Intangible Capital, mortgage credit, skill-biased technological change

Suggested Citation

Döttling, Robin and Perotti, Enrico C., Secular Trends and Technological Progress (December 2017). CEPR Discussion Paper No. DP12519. Available at SSRN: https://ssrn.com/abstract=3095569

Robin Döttling (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR
Netherlands

Enrico C. Perotti

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)

HOME PAGE: http://www.fee.uva.nl/fm/people/pero.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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