Testing for Secular Stagnation in Investment Rates Using a Bayesian Multilevel Model

Using a Bayesian multilevel (‘mixed effects’) model on a large firm-level panel we are able to isolate the secular decline in investment demand and test for causes of it. Our firm-level regression shows that the investment slowdown is a long-standing feature across most firms in 21 advanced economies since 1999 and continuing until the present (2020). Using a group-level (‘macro’) regression, we try to explain firms’ estimated secular investment slowdown. 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