Testing for secular stagnation in investment rates using a Bayesian multilevel model

Abstract

Following Hansen (1939), we use a Bayesian multilevel (‘mixed effects’) model on a large firm-level panel to isolate the secular decline in autonomous investment demand and test for causes of it. Our firm-level regression shows that the investment slowdown is a long-standing feature across firms in 21 advanced economies since 1998 and continuing until the present (2020). Using a group-level (‘macro’) regression, we try to explain firms’ estimated secular decline in autonomous investment demand. We find that a shortage of relative investment opportunities – as per the original secular stagnation thesis – explains 40% of the variation in this secular slowdown.