Secular Stagnation in the Open Economy
American Economic Review
vol. 106,
no. 5, May 2016
(pp. 503-07)
Abstract
Conditions of secular stagnation--low interest rates, below target inflation, and sluggish output growth--now characterize much of the global economy. We consider a simple two-country textbook model to examine how capital markets transmit secular stagnation and to study policy externalities across countries. We find capital flows transmit recessions in a world with low interest rates and that policies that attempt to boost national saving are beggar-thy-neighbor. Monetary expansion cannot eliminate a secular stagnation and may have beggar-thy-neighbor effects, while sufficiently large fiscal interventions can eliminate a secular stagnation and carry positive externalities.Citation
Eggertsson, Gauti B., Neil R. Mehrotra, and Lawrence H. Summers. 2016. "Secular Stagnation in the Open Economy." American Economic Review, 106 (5): 503-07. DOI: 10.1257/aer.p20161106Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E62 Fiscal Policy
- F41 Open Economy Macroeconomics