Secular Stagnation in the Open Economy
Gauti B. Eggertsson, Neil R. Mehrotra, Lawrence H. Summers
American Economic Review · 2016 · Volume 106 · Issue 5
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.
Keywords
Macroeconomics: Production, Price Level, Inflation, Deflation, Business Fluctuations, Cycles, Interest Rates: Determination, Term Structure, and Effects, Monetary Policy, Fiscal Policy, Open Economy Macroeconomics
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