Global Macroeconomic Imbalances after the Crisis: From the Great Moderation to Secular Stagnation

Abstract

After the global financial crisis, economists have been downbeat about the growth prospects of the capitalist world economy, leading many to argue that we have re-entered a period of “secular stagnation”. The phenomenon of secular stagnation is intrinsically connected to the evolution of global macroeconomic imbalances. During the pre-crisis era of the “Great Moderation”, the widening of global and European trade imbalances temporarily alleviated the problem of secular stagnation by forging a symbiotic yet unsustainable relationship between debt-financed consumption-led growth models in deficit countries and export-led growth models in surplus countries. The re-surfacing of secular stagnation and the asymmetric adjustment of these imbalances after the crisis can both be traced back to the domestic political constraints experienced by many advanced market economies in trying to revive their pre-crisis growth models.