Secular Stagnation in the Open Economy

Gauti Eggertsson, Neil R. Mehrotra and Lawrence Summers

American Economic Review, 2016, vol. 106, issue 5, 503-07

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.

JEL-codes: E23 E31 E32 E43 E52 E62 F41 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.p20161106
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Citations: View citations in EconPapers (92)

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