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Abstract

Conditions of secular stagnation–low interest rates, below target inflation, and sluggish output growth–now characterize much of the global economy. We consider a simple two-country textbook model to examine how capital markets transmit secular stagnation and to study policy externalities across countries. We find capital flows transmit recessions in a world with low interest rates and that policies that attempt to boost national saving are beggar-thy-neighbor. Monetary expansion cannot eliminate a secular stagnation and may have beggar-thy-neighbor effects, while sufficiently large fiscal interventions can eliminate a secular stagnation and carry positive externalities.

Citation

Gauti B. Eggertsson & Neil R. Mehrotra & Lawrence H. Summers, 2016. “Secular Stagnation in the Open Economy,” American Economic Review, American Economic Association, vol. 106(5), pages 503-507, May.

@article{eggertsson2016secular,
  title={Secular stagnation in the open economy},
  author={Eggertsson, Gauti B and Mehrotra, Neil R and Summers, Lawrence H},
  journal={American Economic Review},
  volume={106},
  number={5},
  pages={503--507},
  year={2016},
  publisher={American Economic Association 2014 Broadway, Suite 305, Nashville, TN 37203}
}