Bernanke´s GSG hypothesis: A cop-out

Bernanke and Summers just call the same “idea” by different names. To Bernanke it´s “Savings Glut”. To Summers it´s “Secular Stagnation”. In his “A Response to Bernanke“, Summers writes: “The essence of secular stagnation is a chronic excess of saving over investment”.
I figured I could reblog this old post dealing with Bernanke´s GSG hypothesis and that would also cover Summers´arguments.


Bernanke is at it again. In a speech last friday and in a new paper, he gives new life to the global savings glut hypothesis (GSG) that he first put forth in 2005 as an explanation for Greenspan´s “Conundrum” (the fact that after mid 2004, with the Fed increasing the policy rate (FF), long term rates “stayed put”). This time he extends his original arguments by considering the type of assets desired by the emerging economies (the savers) as they recycled their dollar reserves into US investments.

Indirectly, this discussion, which has been going on for several years, smacks of an effort to absolve the Fed from responsibility for the financial crisis which erupted with the bursting of the house bubble. For many (see this post by David Beckworth), bad monetary policy in 2002-04 (“rates too low for too long”) is a major factor behind the housing boom…

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2 thoughts on “Bernanke´s GSG hypothesis: A cop-out

  1. So far, Bernanke does not want to address the year 2008 or quantitative easing. We will see what happens in his future blogs.

  2. Cole, off topic, I asked you a question back on “the (Stan) Fischer Effect” . In your comment there you claim that RGDP could have been higher in the last 6 years if the monetary stance was more accomodative than it was. Why is that? Isn’t money “super neutral”, an expression I take to mean that monetary policy cannot have real effects in the long run? If monetary policy were even more accomodative in the last 6 years, under the “super neutral” hypothesis, inflation would have been higher, yes, but RGDP about the same, doh’t you think? What am I missing here ? Thanks.

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