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.
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