Real Interest Rates, Exchange Rates and the ZLB: On Secular Stagnation

45 Pages Posted: 12 Apr 2018 Last revised: 29 Oct 2018

See all articles by Sweder van Wijnbergen

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2018

Abstract

What are the drivers of low real rates? What are the implications of the Zero Lower Bound for economic policy? To discuss these questions, we introduce a full general equilibrium model of the world economy within a simple (2 period) intertemporal structure. The model is simple enough to allow for full analytical solution yet sufficiently complex to allow us to address the impact of anticipated future productivity slow down, aging, structural reform and fiscal policy on real interest rates if markets clear and on aggregate economic activity if they do not (because of the ZLB). We extend both the equilibrium model and the ZLB variant to a more-goods-per-period structure to address (real) exchange rate policy and the macroeconomic impact of trade tariffs, like Trump's current trade war, on global economic activity.

Keywords: aging, equilibrium real interest rates, import tariffs, productivity change, real exchange rates, the ZLB

JEL Classification: E62, F13, F40, F41, H30

Suggested Citation

van Wijnbergen, Sweder, Real Interest Rates, Exchange Rates and the ZLB: On Secular Stagnation (April 2018). CEPR Discussion Paper No. DP12837. Available at SSRN: https://ssrn.com/abstract=3159139

Sweder Van Wijnbergen (Contact Author)

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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