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In the last few decades, real GDP growth and investment in advanced countries have declined in tandem. This slowdown was not the result of weak demand (there has been no shift along the Okun curve), but of a decline in potential output growth (which has shifted the Okun curve to the left). We analyze what happens if central banks mistakenly diagnose the problem as insufficient demand, when it is actually a supply problem. We do this in a real model, in which inflation is not an issue. We show that aggressive central bank action may revive gross investment, but it will not revive net investment or growth. Moreover, low interest rates will lead to an increase in the capital output ratio, a low return on capital and high leverage. We show that these forecasts are in line with what has happened in major advanced countries.

Monetary policy. --- Monetary management --- Economic policy --- Currency boards --- Money supply --- Investments: Stocks --- Labor --- Macroeconomics --- Production and Operations Management --- Neoclassical --- Investment --- Capital --- Intangible Capital --- Capacity --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary Policy --- One, Two, and Multisector Growth Models --- Macroeconomics: Production --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Labor Standards: Labor Force Composition --- Investment & securities --- Labour --- income economics --- Capital productivity --- Potential output --- Production growth --- Stocks --- Labor force participation --- Production --- Financial institutions --- Economic theory --- Labor market --- Japan

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• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)