Real interest rates, exchange rates and the ZLB: on Secular Stagnation

Sweder van Wijnbergen

No 12837, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What are the drivers of low real rates? What are the implications of the Zero Lower Bound for economic policy? To discuss these questions, we introduce a full general equilibrium model of the world economy within a simple (2 period) intertemporal structure. The model is simple enough to allow for full analytical solution yet sufficiently complex to allow us to address the impact of anticipated future productivity slow down, aging, structural reform and fiscal policy on real interest rates if markets clear and on aggregate economic activity if they do not (because of the ZLB). We extend both the equilibrium model and the ZLB variant to a more-goods-per-period structure to address (real) exchange rate policy and the macroeconomic impact of trade tariffs, like Trump's current trade war, on global economic activity.

Keywords: Equilibrium real interest rates; Aging; Real exchange rates; Import tariffs; Productivity change; The zlb (search for similar items in EconPapers)
JEL-codes: E62 F13 F40 F41 H30 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac, nep-mon and nep-opm
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