Global Imbalances and Policy Wars at the Zero Lower Bound
This paper explores the consequences of extremely low real interest rates in a world with integrated but heterogenous capital markets, nominal rigidities and an effective lower bound (a ZLB for simplicity). We establish four main results: (i) At the ZLB, creditor countries export their recession abroad, which we illustrate with a new Metzler diagram in quantities; (ii) Beggar-thy-neighbor currency and trade wars provide stimulus to the undertaking country at the expense of other countries; (iii) (Safe) public debt issuances and increases in government spending anywhere are expansionary everywhere; (iv) When there is a scarcity of safe assets, net issuers of safe assets import the recession from abroad.
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Copy CitationRicardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas, "Global Imbalances and Policy Wars at the Zero Lower Bound," NBER Working Paper 21670 (2015), https://doi.org/10.3386/w21670.Download Citation
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Published Versions
Ricardo J Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2021. "Global Imbalances and Policy Wars at the Zero Lower Bound," The Review of Economic Studies, vol 88(6), pages 2570-2621. citation courtesy of 
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