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American Economic Review Vol. 106 No. 5 2016

Secular Stagnation in the Open Economy

Gauti B. Eggertsson1; Neil R. Mehrotra1; Lawrence H. Summers2

1 Economics Department, Brown University, Robinson Hall, 64 Waterman Street, Providence, RI 02912 (e-mail: ) · 2 John F. Kennedy School of Government, Mailbox 8, 79 JFK Street, Cambridge, MA 02138 (e-mail: )

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.

DOI
10.1257/aer.p20161106
Volume
106
Issue
5
Pages
503-507
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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