Secular Stagnation in the Open Economy

14 Pages Posted: 18 Apr 2016

See all articles by Gauti B. Eggertsson

Gauti B. Eggertsson

Federal Reserve Bank of New York

Neil R Mehrotra

Brown University - Department of Economics

Larry Summers

Harvard University

Date Written: April 2016

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 trigger current account surpluses 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.

Suggested Citation

Eggertsson, Gauti B. and Mehrotra, Neil R and Summers, Larry, Secular Stagnation in the Open Economy (April 2016). NBER Working Paper No. w22172, Available at SSRN: https://ssrn.com/abstract=2766157

Gauti B. Eggertsson (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Neil R Mehrotra

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

Larry Summers

Harvard University ( email )

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