Working Paper: CEPR ID: DP12519
Authors: Robin Dottling; Enrico Perotti
Abstract: Can technological progress explain secular stagnation? We show how an excess of savings over investment arises when innovative production requires creative human capitalrather than physical investment. Innovating firms cannot own human capital so they need less investment financing, but need to ensure the commitment of human capitalby rewarding it gradually over time. Over time, as innovators are granted a rising income share, the supply of investable assets falls. The general equilibrium effect is decliningcorporate leverage, a gradual fall in interest rates and rising asset valuations. The concomitantrise in house prices and wage inequality leads to higher household leverage andmortgage default risk. We show that only a redistributive productivity shift can accountfor a fall in physical investment in the context of falling interest rates, consistent withmajor economic and financial trends since 1980.
Keywords: Intangible Capital; Skill-Biased Technological Change; Mortgage Credit; Human Capital; Excess Savings; House Prices
JEL Codes: D33; E22; G32; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technological change (O33) | Excess of savings over investment (E22) |
| Excess of savings over investment (E22) | Lower corporate leverage (G32) |
| Excess of savings over investment (E22) | Falling interest rates (E43) |
| Technological change (O33) | Rising asset valuations (G19) |
| Technological change (O33) | Wage inequality (J31) |
| Redistributive productivity shift (O49) | Decline in physical investment (E22) |