Eggertsson, Lancastre, and Summers (2019) showed that population aging, benign for output per capita when real interest rates adjust freely, depresses living standards exactly when nominal rates are constrained by the zero lower bound (ZLB), and they stressed that the same regime-dependent logic applies to any force that raises desired saving or lowers desired investment: rising inequality, debt deleveraging, the global savings glut, rising life expectancy, the falling relative price of investment, and slower productivity growth. They quantified only aging. The open problem is a quantitative assessment of the relative contribution of each of these forces to the observed decline in natural real interest rates and to the output losses economies experienced at the ZLB during the 2008-2015 secular-stagnation regime, respecting the nonlinearity that the ZLB introduces. Subsequent work has substantially decomposed the natural-rate decline itself (notably Platzer and Peruffo 2022; Mian, Straub, and Sufi 2021), but no unified attribution of ZLB output losses across the full set of forces exists.

Background

Secular stagnation is the hypothesis, revived by Lawrence Summers after 2013 in echo of Alvin Hansen's 1939 stagnation thesis, that chronically deficient aggregate demand can hold advanced economies below potential for a decade or more because the real interest rate needed to equilibrate saving and investment - the natural or neutral real interest rate r∗r^{*} - has fallen so low that it cannot be reached by monetary policy: nominal policy rates face a zero lower bound (ZLB), since cash can always be held instead of bonds at zero nominal return. In such a liquidity trap, excess saving translates into depressed output rather than into lower rates.

Against this backdrop, Eggertsson, Lancastre, and Summers (2019) re-examined the cross-country relationship between population aging and output per capita. Earlier work (Cutler et al. 1990; Acemoglu and Restrepo 2017) had found the correlation positive: aging societies grow faster per capita, because a slowly growing labor force induces capital deepening - a higher capital-to-worker ratio - as real interest rates fall to absorb the extra saving. Eggertsson, Lancastre, and Summers confirm this for periods when rates could adjust, but show that during 2008-2015 the correlation reverses for countries at the ZLB. In their overlapping-generations model (a model in which agents of different ages coexist and save for retirement over a finite life) with a fixed nominal wage and a binding ZLB, the excess saving that aging produces cannot be absorbed by lower rates and instead lowers output. The effect of aging is regime-dependent: the same force is benign in what they call the regular neoclassical regime and malignant in the secular stagnation regime.

Their conclusion carries an explicit caveat that motivates the present problem: the regime-dependence applies to any force that increases the relative propensity to save or decreases the propensity to invest. They list rising inequality (high-income households save more), debt-deleveraging cycles, the global savings glut, increases in life expectancy, a fall in the relative price of investment goods, and lower productivity growth, referring to earlier discussions of these forces but undertaking no quantitative assessment of them. A parallel literature has since quantified pieces of this agenda. Eggertsson, Mehrotra, and Robbins (2019) build a 56-period life-cycle model of the United States in which demographics alone deliver a natural rate of -1.5 to -2 percent and decompose the contribution of demographic and technological factors to the decline in rates since 1970. Rachel and Smith decompose the global decline in real rates into demographics and the expected productivity slowdown, with other forces left as a residual; Del Negro, Giannone, Giannoni, and Tambalotti (2019) attribute the global decline to slower trend growth and rising convenience yields on safe assets; Marx, Mojon, and Velde (2021) study why safe rates have fallen far below the return on capital, with demographics, inequality, and the safety premium as candidate drivers. Mian, Straub, and Sufi (2021) use long-run U.S. microdata to argue that rising inequality explains more of the saving-driven decline in r∗r^{*} than the aging of the baby boom, and in their Indebted Demand framework show how inequality and household debt depress both r∗r^{*} and demand at the ZLB. Platzer and Peruffo (2022) nest demographics, the productivity slowdown, rising inequality, and public debt in a single heterogeneous-agent overlapping-generations model and account for a 2.2 percentage point decline in U.S. r∗r^{*} between 1975 and 2015, attributing roughly -0.7 points to inequality, -0.7 to demographic change, -1.0 to productivity, and +0.3 (offsetting) to public debt. On the outcome side, Kiley and Roberts (2017) estimate that with a low r∗r^{*} the ZLB binds in 30 to 40 percent of future periods, and Rachel and Summers (2019) quantify how close the industrialized bloc as a whole is to secular stagnation absent fiscal support.

What this literature has not delivered is the assessment the source's caveat points to: a single quantitative attribution in which the full set of forces - including debt deleveraging, the fall in the relative price of investment, and the global savings glut, which the unified r∗r^{*} decompositions omit - is mapped not only onto the decline in the natural rate but onto the output losses actually experienced at the ZLB, the dependent variable of Eggertsson, Lancastre, and Summers. The task is subtle because the ZLB makes attribution nonlinear: each force's sign depends on the monetary regime, and simultaneously acting forces interact, so their contributions are not additive in the usual sense.

Problem Statement

Provide a quantitative assessment of the relative contribution of each of the secular forces named by Eggertsson, Lancastre, and Summers (2019) - population aging (including rising life expectancy), rising income inequality, private-sector debt deleveraging, the fall in the relative price of investment, the global savings glut (safe-asset scarcity), and slower productivity growth - to (i) the observed decline in natural real interest rates across advanced economies and (ii) the output-per-capita losses economies experienced at the zero lower bound during the secular-stagnation regime of 2008-2015. The assessment must respect the regime-dependence the source establishes: each force supports capital deepening when real rates adjust freely but depresses output when the ZLB binds, so contributions must be computed within the nonlinear environment of an occasionally-binding constraint, not by linear accounting. Each driver's contribution is to be quantified together with its uncertainty, and the sensitivity of the attribution - in particular of the ranking of drivers - to the decomposition protocol used for simultaneously acting forces and to modeling, calibration, and identification choices is to be determined.

References

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