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 Secular Stagnation Risk and Implications for the Real Interest Rates

Gilles DUFRÉNOT * Chercheur associé, CEPII ; professeur, Aix-Marseille Université ; membre, École d'économie d'Aix-Marseille (AMSE). Contact :

This article presents some of the issues involved in secular stagnation, a phenomenon that can be summarized as a combination of three phenomena: downward trajectories in potential growth rates over several decades, interest rates that have also been on a downward trend for several decades, and persistent deflationary pressures over time. Industrialized countries have been confronted with these phenomena since the mid-1980s. Potential growth influences natural interest rates, which are a long-term attractor for observed real rates. The article presents some theoretical interpretations of the determinants and evolution of natural rates, as well as empirical measures obtained for different countries. We emphasize the role of financial markets and the consequences of the phenomenon of « gluttony » of savings. From the point of view of monetary policy, a difficulty in converging the observed real rates to the natural rates may arise in a low inflation regime when the nominal interest rate is constrained by the zero lower bound. Expansive fiscal policies may be recommended to make the two rates converge.