Policy intervention helps economies escape ‘stagnation traps’ – paper

unemployment-job-loss
Countercyclical subsidies could help economies in “stagnation traps”

Policies that focus on restoring growth can help an economy escape from a “stagnation trap”, research published by the European Central Bank has found.

Authors Gianluca Benigno and Luca Fornaro examine the theory that “pessimistic expectations” can lead to “persistent or even permanent slumps”, dubbed “stagnation traps”.

“In a stagnation trap, the central bank is unable to restore full employment because weak growth depresses aggregate demand and pushes the interest rate against the zero lower

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