There is growing debate regarding whether the U.S. economy has entered a period of long-run, or secular, stagnation. The Great Recession has certainly increased interest in that discussion. While the onset of the stagnation is said to predate the Great Recession by 35 years, labor productivity has slowed further since 2010. History shows that recessions, even the Great Depression, have not generally had any effect on long-run economic growth. However, one still wonders whether this latest recession’s legacy will exacerbate any fundamental decline in U.S. economic growth, perhaps through a lingering deterioration in job skills arising from historically high long-term unemployment or through inefficiencies from overregulation in response to the financial crisis. Whether we will see stagnation or a rebirth of productivity obviously has serious implications for Americans’ standard of living. But as I will show, it also has important implications for how monetary policy may need to adjust.

This article appeared in the First Quarter 2016 edition of Economic Insights. Download and read the full issue.