Three Charts on Secular Stagnation

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Secular stagnation is the proposition that periods like the last five-plus years, when even zero policy interest rates aren’t enough to restore full employment, are going to be much more common in the future than in the past — that the liquidity trap is becoming the new normal. Why might we think that?

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Beyond that, it does look as if it was getting steadily harder to get monetary traction even before the 2008 crisis. Here’s the Fed funds rate minus core inflation, averaged over business cycles (peak to peak; I treat the double-dip recession of the early 80s as one cycle):



And this was true even though there was clearly unsustainable debt growth, especially during the Bush-era cycle:



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Finally, the growth of potential output is very likely to be much slower in the future than in the past, if only because of demography:



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http://krugman.blogs.nytimes.com/2014/05/07/three-charts-on-secular-stagnation