Secular Stagnation in the Open Economy
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 trigger current account surpluses 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.
This paper is forthcoming in the American Economic Review, Papers and Proceeding, May 2016. It was presented at the January 2016 AEA meetings in the session: “Global Reserve Assets in a Low Interest Rate World.” We thank Matteo Maggiori for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Gauti B. Eggertsson & Neil R. Mehrotra & Lawrence H. Summers, 2016. "Secular Stagnation in the Open Economy," American Economic Review, vol 106(5), pages 503-507. citation courtesy of