U.S. Macro Policies and Global Economic Challenges
27 Pages Posted: 15 Jan 2021
Date Written: December 30, 2020
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.
Keywords: Debt Overhang, Emerging Markets, Macro Policies, Secular Stagnation, Global Currencies, Global Stability
JEL Classification: F33, F34, F41, F42, F55
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