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Summers on secular stagnation, the ISLM, and the liquidity trap

Summary:
Two short clips from Lawrence Summers talk at the ASSA meeting in San Diego. So he first says that secular stagnation is more plausible now than before. He sees that it can be explained as a shift of the IS curve backwards. His IS has a somewhat marginalist foundation, with a natural rate, and a fairly conventional story for investment. Of course, the negative shift has bee compensated by some sort of stimulus, that is now weaker. I would say a smaller multiplier that affects the slope of the IS would make more sense. [embedded content] And he does say in the next clip that the IS is steeper, and the LM is flat, or that we are in a liquidity trap. Again, I think it's not really that, and simply a policy decision of the Fed, inevitable given the circumstances, perhaps. [embedded

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Two short clips from Lawrence Summers talk at the ASSA meeting in San Diego. So he first says that secular stagnation is more plausible now than before. He sees that it can be explained as a shift of the IS curve backwards. His IS has a somewhat marginalist foundation, with a natural rate, and a fairly conventional story for investment. Of course, the negative shift has bee compensated by some sort of stimulus, that is now weaker. I would say a smaller multiplier that affects the slope of the IS would make more sense.
And he does say in the next clip that the IS is steeper, and the LM is flat, or that we are in a liquidity trap. Again, I think it's not really that, and simply a policy decision of the Fed, inevitable given the circumstances, perhaps.
He also, is not optimistic on monetary policy, and is pushing for expansionary fiscal policy. And certainly, even if there are many differences in the way I would portray the current macroeconomic situation, in particular the causes of the slow recovery and what he calls secular stagnation, on the policy issue we are not that far.
Matias Vernengo
Econ Prof at @BucknellU Co-editor of ROKE & Co-Editor in Chief of the New Palgrave Dictionary of Economics

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