A Recipe for Addressing Secular Stagnation

Adam S. Posen (PIIE)

PIIE President Adam S. Posen assesses the causes of low investment and wage growth that have occurred in advanced countries despite extraordinary monetary stimulus, a problem known as “secular stagnation.” Citing the experience of Japan, Posen notes that fiscal stimulus there helped to overcome its “lost decade” of the 1990s. While supporting more active and creative monetary stimulus, but avoiding the label “unconventional” to describe such policies, Posen calls for better coordination of fiscal and monetary policies, with the G-7 countries’ central banks raising their inflation targets together. At the same time, advanced countries must undertake more public investment, perhaps through a so-called Green New Deal. Posen spoke in San Diego on January 2, 2020, at a session on global monetary issues held by the Institute for Humane Studies and Mercatus Center at George Mason University during a gathering of the American Economic Association.