Liquidity traps, capital flows
Sushant Acharya () and
No 765, Staff Reports from Federal Reserve Bank of New York
Motivated by debates surrounding international capital flows during the Great Recession, we conduct a positive and normative analysis of capital flows when a region of the global economy experiences a liquidity trap. Capital flows reduce inefficient output fluctuations in this region by inducing exchange rate movements that reallocate expenditure toward the goods it produces. Restricting capital mobility hampers such an adjustment. From a global perspective, constrained efficiency entails subsidizing capital flows to address an aggregate demand externality associated with exchange rate movements. Absent cooperation, however, dynamic terms-of-trade manipulation motives drive countries to inefficiently restrict capital flows, impeding aggregate demand stabilization.
Keywords: capital flows; international spillovers; liquidity traps; capital flow management; policy coordination; optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E52 F32 F38 F42 F44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
Date: 2016-01-01, Revised 2018-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed
Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/rese ... orts/sr765.pdf?la=en Full text (application/pdf)
Journal Article: Liquidity traps, capital flows (2018)
Working Paper: Liquidity Traps, Capital Flows (2016)
Working Paper: Liquidity traps, capital flows (2015)
Working Paper: Liquidity Traps, Capital Flows (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:765
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Amy Farber ().