U.S. Macro Policies and Global Economic Challenges

25 Pages Posted: 21 Dec 2020 Last revised: 21 Feb 2021

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics; National Bureau of Economic Research (NBER)

Hiro Ito

Portland State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 2020

Abstract

This paper overviews different exit strategies for the U.S. from the debt-overhang, and analyses their implications for emerging markets and global stability. These strategies are discussed in the context of the debates about secular-stagnation versus debt-overhang, the fiscal theory of the price level, the size of fiscal multipliers, prospects for a multipolar currency system, and historical case studies. We conclude that the reallocation of U.S. fiscal efforts towards infrastructure investment aiming at boosting growth, followed by a gradual tax increase, aiming at reaching a modest primary fiscal surplus over time are akin to an upfront investment in greater long-term global stability. Such a trajectory may solidify the viability and credibility of the U.S. dollar as a global anchor, thereby stabilizing Emerging Markets economies and global growth.

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Suggested Citation

Aizenman, Joshua and Ito, Hiro, U.S. Macro Policies and Global Economic Challenges (December 2020). NBER Working Paper No. w28232, Available at SSRN: https://ssrn.com/abstract=3753142

Joshua Aizenman (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
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National Bureau of Economic Research (NBER) ( email )

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Hiro Ito

Portland State University - Department of Economics ( email )

Portland, OR 97207-0751
United States
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503-725-3945 (Fax)

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