Economic crisis has led to crisis in the field of macroeconomics. The idea that depressions were a concept of only historic interest has been belied by the financial crisis and “Great Recession”. Figures 1a and 1b depicts the gap between actual and potential output estimated as of various dates for both the US and the Eurozone. It is apparent that output is far short of where its potential was expected to be as of 2008. Even more troubling is the observation that most of the gap is expected to represent a permanent loss as potential output has been revised sharply downwards. For the Eurozone, GDP is almost 15% below its 2008-estimated potential and potential output has been written down by almost 10%. As Figure 2 illustrates Europe’s output shortfall is almost identical to the one Japan experienced when the bursting of its ‘bubble economy’ triggered a financial crisis.
Chosen excerpts by Job Market Monitor. Read the whole story at What to do about secular stagnation? – Forum:Blog Forum:Blog | The World Economic Forum.