A Model of Secular Stagnation

A Quantitative Analysis for an Endowment Economy with Fiscal Policy


  • Kareem Abdallah Prague University of Economics and Business


Secular stagnation, Interest rate, Fiscal policy, Overlapping generations model


This paper follows the ideas developed and formulated by Eggertsson, Mehrotra and Robbins of a secular stagnation model in which persistently low or even negative natural rates of interest become a permanent state of the economy. This differs substantially from New Keynesian models which only see negative interest rates as a temporary occurrence. With monetary policy constrained by the zero lower bound, economic policy necessitates a further exploration of fiscal policy. We present a quantitative analysis of an endowment economy OLG model with fiscal policy to illustrate the capabilities of fiscal policy in aiding an economy out of secular stagnation.