is to deny that it was necessary to reduce the large fiscal deficits in many countries that resulted from the combined effects of the recession and of expansionary fiscal policies at the early stages of the crisis ; it simply reaffirms that the short - run impacts of contractionary fiscal policies are contractionary. bis central bankers ’ speeches pace. most salient, not least for sweden, has been the impact of the fiscal and financial situation in the euro area over the past few years. weaker economic conditions in europe and other parts of the world have weighed on u. s. exports and corporate earnings ; added to the risks that u. s. financial institutions, businesses, and households considered when making lending and investment decisions ; and at times depressed u. s. equity prices. the housing market, fiscal consolidation, and unexpectedly anemic foreign demand all play a significant role in explaining the weakness of aggregate demand in the u. s. economy, weakness that could not have been accurately predicted based on past recession experiences or by the fact that this recession started with a massive financial crisis. but, turning to the aggregate supply side, we are also seeing important signs of a slowdown of growth in the productive capacity of the economy – in the growth in labor supply, capital investment, and productivity. this may well reflect factors related to or predating the recession that are also holding down growth. how much of this weakness on the supply side will turn out to be structural – perhaps contributing to a secular slowdown – and how much is temporary but longer - than - usuallasting remains a crucial and open question. looking at the aggregate production function, we begin with labor supply. the considerable slowdown in the growth rate of labor supply observed over the past decade is a source of concern for the prospects of u. s. output growth. there has been a steady decrease in the labor force participation rate since 2000. although this reduction in labor supply largely reflects demographic factors – such as the aging of the population – participation has fallen more than many observers expected and the interpretation of these movements remains subject to considerable uncertainty. for instance, there are good reasons to believe that some of the surprising weakness in labor force participation reflects still poor cyclical conditions. many of those who dropped out of the labor force may be discouraged workers. further strengthening of the economy will likely pull some of these workers back into the labor market, although skills and networks may have depreciated some over the past years. another factor that may be

projections had fallen to between roughly 2 and 2 - 1 / 4 percent. this downward revision is not unique to our institution or to the united states. indeed, the imf ’ s expectation for long - run global growth is now a full percentage point below what it was immediately before the global financial crisis. 3 this reconsideration reflects lower projected growth for both the advanced and the emerging market economies. this pattern of disappointment and downward revision sets up the first, and the basic, challenge on the list of issues policymakers face in moving ahead : restoring growth, if that is possible. in some respects, we should not have been surprised at the prolonged hit to output growth following the global financial crisis. as cerra and saxena and reinhart and rogoff, among others, have documented, it takes a long time for output in the wake of banking and financial crises to return to pre - crisis levels. 4 possibly we are simply seeing a prolonged reinhart - rogoff cyclical episode, typical of the aftermath of deep financial crises, and compounded by other temporary headwinds. but it is also possible that the underperformance reflects a more structural, longer - term, shift in the global economy, with less growth in underlying supply factors. separating out the cyclical from the structural, the temporary from the permanent, impacts of the great recession and its aftermath on the macroeconomy is necessary to assessing and calibrating appropriate policies going forward. the difficulty in disentangling demand and supply factors makes the job of the monetary policymaker especially hard since it complicates the assessment of the amount of slack, or underutilized productive capacity, in the economy. over the longer term it will be possible to disentangle the amount of slack on the basis of the behavior of prices and wages as the levels of resource utilization in economies rise, but it would be better to understand why growth has been so slow without experiencing either a runup in inflation or a descent into deflation. see greg howard, robert martin, and beth anne wilson ( 2011 ), “ are recoveries from banking and financial crises really so different? ” international finance discussion papers 1037 ( washington : board of governors of the federal reserve system, november ). this calculation compares the imf weo ’ s forecast for global growth 5 years ahead from the april 2008 weo to the weo july 2014 forecast. see carmen m. reinhart and kenneth s. rogo