Protectionist Trade Barriers to Threaten Policy-induced Debt Trap

Victor Xing

MPRA Paper from University Library of Munich, Germany

Abstract: BIS working paper highlighted monetary authorities’ asymmetrical policies that are “too timid” in leaning against financial booms but too aggressive and persistent in leaning against financial busts, thus giving rise to a debt trap. Disinflationary effects of globalization induced persistent policy accommodation and encouraged leveraged risk-taking, and the ensuing systemic vulnerability to higher interest rates are at risk from protectionist trade policies. Tariff-induced price pressure and rising federal deficits as a result of tax reform would exacerbate effects of global quantitative tightening (waning unconventional easing) and threaten the post-crisis “lower for longer” paradigm. Heightened volatility as a result of higher bond yields would increase the likelihood of dovish Fed policy reactions, for both the U.S. and other advanced economies cannot tolerate higher interest rates under a policy-led debt trap.

Keywords: Debt trap; trade barrier; quantitative tightening (search for similar items in EconPapers)
JEL-codes: E0 E5 G1 (search for similar items in EconPapers)
Date: 2018-03-04
New Economics Papers: this item is included in nep-mac
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