Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162675
Authors: 
Benigno, Gianluca
Fornaro, Luca
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper 2038
Abstract: 
We provide a Keynesian growth theory in which pessimistic expectations can lead to very persistent, or even permanent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth depresses aggregate demand and pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms' investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.
Subjects: 
Secular Stagnation
Liquidity Traps
Growth Traps
Endogenous Growth
Multiple Equilibria
JEL: 
E32
E43
E52
O42
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2760-4
Document Type: 
Working Paper

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