EconPapers    
Economics at your fingertips  
 

A Contagious Malady? Open Economy Dimensions of Secular Stagnation

Gauti Eggertsson (), Neil Mehrotra, Sanjay Singh () and Lawrence Summers
Additional contact information
Neil Mehrotra: Brown University

No 1701, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We propose an open economy model of secular stagnation and show how it can be transmitted from one country to another via current account imbalances. While current account surpluses normally lower interest rates in the recipient country, in a secular stagnation, surpluses transmit recessions due to the zero lower bound on nominal interest rates. In general monetary policies and those directed at competitiveness have negative externalities on trading partners in these circumstances, while fiscal policies and those directed at stimulating domestic demand have positive externalities. This, in a positive sense, explains why the world has relied so much on monetary policies relative to fiscal policies in the wake of the financial crisis and in a normative sense points towards the desirability of fiscal policies. Fiscal policies in response to a secular stagnation are self-financing as in De Long and Summers (2012) in our numerical experiments and a one shot increase in debt will raise demand and is fiscally sustainable. While expansionary monetary policy only provides for a possibility of a better outcome without ex- cluding the possibility of continuing secular stagnation appropriate fiscal policy eliminates secular stagnation by directly raising the natural rate of interest as in Eggertsson-Mehrotra (2014).

Date: 2016
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (66) Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2016/paper_1701.pdf (application/pdf)

Related works:
Journal Article: A Contagious Malady? Open Economy Dimensions of Secular Stagnation (2016) Downloads
Working Paper: A Contagious Malady? Open Economy Dimensions of Secular Stagnation (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1701

Access Statistics for this paper

More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2020-04-07
Handle: RePEc:red:sed016:1701