“Peanuts” comic-strip creator Charles Schulz quipped that once you’re over the hill, you begin to pick up speed. He clearly wasn’t talking about the global economy.
Developed countries are aging, and a growing body of research suggests that demographic headwinds are reining in potential growth and curbing how high interest rates can rise. That’s causing a massive rethink at central banks, who may find themselves with little room to cut rates and boost growth during the next recession.
Papers that dig into big structural changes in the global economy, from the demographically-induced slowdown to slumping productivity, are the focus of this edition of our economic research wrap. Check this roundup every week for the latest on interesting and influential economic research from around the world.
Fed Vice Chairman Stanley Fischer included this gem of a paper in the footnotes of his Oct. 17 speech. Today’s sub-par U.S. economic growth and low interest rates were predictable, the authors find, based on a model that takes into account changes in the U.S. population, family composition, life expectancy and labor market activity. Those are long-run changes, so the low growth-environment they’ve created seems poised to persist.
Most of the demography-induced slowdown has happened since 2000, so “downward pressures on interest rates and GDP growth due to demographics could be easily misinterpreted as persistent but ultimately temporary influences of the global financial crisis.” Interpretation: we thought growth was crummy because we were getting back to normal, but in fact it may be that tepid growth and low rates are normal.