Debt deleveraging and the exchange rate

Pierpaolo Benigno and Federica Romei

Journal of International Economics, 2014, vol. 93, issue 1, 1-16

Abstract: Deleveraging from high debt can provoke deep recession with significant international side effects. Swings in the nominal exchange rate and large variations in consumption, output, and terms of trade can happen during the adjustment. All these movements are inefficient and interesting trade-offs emerge from the perspective of global welfare. The optimal adjustment to global imbalances should not necessarily require large movements in the nominal exchange rate. A global liquidity trap can be desirable when countries are more open to trade.

Keywords: Current account adjustment; Liquidity trap; Debt deleveraging; Exchange rate (search for similar items in EconPapers)
JEL-codes: F41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (45)

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Related works:
Working Paper: Debt Deleveraging and the Exchange Rate (2012)
Working Paper: Debt Deleveraging and The Exchange Rate (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:93:y:2014:i:1:p:1-16

DOI: 10.1016/j.jinteco.2014.03.001

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