Equilibrium Real Interest Rates and Secular Stagnation: An Empirical Analysis for Euro-Area Member Countries

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Is secular stagnation—a period of persistently lower growth such as that seen following the financial crisis of 2008-09—a valid concern for euro-area countries? We tackle this question using the well-established Laubach-Williams model to estimate the unobservable equilibrium real interest rate and compare it to the actual real rate. In light of the considerable increase in heterogeneity among EU member countries since the beginning of the financial crisis, we apply our approach to 12 euro-area countries to provide country-level answers to the question of secular stagnation. The presence of secular stagnation in a number of euro-area countries has important implications for ECB decision-making (e.g. voting power in the Governing Council) and EU governance. Our results indicate that secular stagnation is not a significant threat to most euro-area countries, with the possible exception of Greece.


Keywords: equilibrium real interest rate, secular stagnation, euro-area countries, heterogeneity

JEL-codes: E43, F45, C32

Ansgar Belke is Associate Senior Research Fellow at CEPS and Full Professor of Macroeconomics and Director of the Institute of Business and Economic Studies (IBES) at the University of Duisburg-Essen. Since 2012, he is (ad personam) Jean Monnet Professor. Jens Klose is Professor for Statistics and Economics at the THM Business School, Giessen, Germany.

This paper was originally published in the Journal of Common Market Studies, May 2017. CEPS is republishing it here with the kind permission of the JCMS.