Secular Stagnation in Non-EMU European Countries : Equilibrium Real Rate Approach

Abstract

Concerns about economies facing secular stagnation—a period of persistently lower growth—have been renewed after the start of the financial crisis in 2008~2009. This issue is well investigated for the euro area as a whole or for the individual countries forming the monetary union, with the general consensus being that secular stagnation is not present in the Economic and Monetary Union (EMU). So far no studies have been conducted for the remaining European countries, and thus this study tackles this issue for the five non-EMU European countries using the well-established Laubach–Williams model to estimate the unobservable equilibrium real interest rate and compare it with the actual real rate. The obtained results have important implications for national policymakers, i.e., if secular stagnation is present in one country, then there is a risk of growth divergence with the country’s most important trading partners. The results also indicate that secular stagnation is not a significant threat to the non-EMU European countries, so they do not face structurally different growth dynamics compared with those of the euro area.