Policy makers in the advanced economies at the core of the global financial crisis can make the claim that they prevented a new “Great Depression”. However, recovery since the outbreak of the crisis more than five years ago has been sluggish and feeble. Since these macroeconomic outcomes have to some extent been shaped by policy mixes adopted in those economies in response to the crisis, the appropriateness of those policy choices is a question worth revisiting. This is particularly the case as one considers the hypothesis that a long-run trend toward stagnation may have already been at play during the pre-crisis period, even if temporarily countervailed by pervasive asset price booms.

In the aftermath of the recent global financial crisis, advanced economies have continued to experience sluggish growth. Is this slow postcrisis growth the result of a policy response that was overly reliant on monetary policy, which ran into the zero interest rate lower bound before growth was restored? Looking deeper, is secular stagnation, which is related to the zero lower bound and was recently brought to the fore by Larry Summers, another potential cause for advanced economies’ failure to return to precrisis growth levels? This note seeks to answer these questions as well as identify what alternative policies might be pursued by advanced economies to escape secular stagnation, should stagnation proponents be proven correct. After a brief review of secular stagnation, Summers’ hypothesis is tested through a review of academic literature and opinion pieces. However, the secular stagnation theory is not without its critics; moreover, there is a debate between “Keynesian versus Schumpeterian” economists, which could help to shed light on the medium-term postcrisis outlook.