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Capital Misallocation and Secular Stagnation
The widespread emergence of intangible technologies in recent decades may have significantly hurt output growth-even when these technologies replaced considerably less productive tangible technologies-because of low interest rates.
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Andrea Caggese is Associate Professor at Universitat Pompeu Fabra, Associate Researcher at the Center for Research in International Economics (CREI), and Affiliated Professor at the Barcelona GSE. He holds a PhD in Economics from the London School of Economics (2002), where he also earned his masters degree. Professor Caggese's research interests include macroeconomics, investment theory, and firm dynamics. He has published in The Economic Journal, Journal of Financial Economics, and Journal of Monetary Economics among others.
The widespread emergence of intangible technologies in recent decades may have significantly hurt output growth-even when these technologies replaced considerably less productive tangible technologies-because of low interest rates. After a shift toward intangible capital in production, the corporate sector becomes a net saver because intangible capital has a low collateral value. Firms' ability to purchase intangible capital is impaired by low interest rates because low rates slow down the accumulation of savings and increase the price of capital, worsening capital misallocation. Our model simulations reproduce key trends in the U.S. in the period from 1980 to 2015.
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