Global Imbalances and Policy Wars at the Zero Lower Bound
70 Pages Posted: 3 Mar 2020
There are 4 versions of this paper
Global Imbalances and Policy Wars at the Zero Lower Bound
Global Imbalances and Policy Wars at the Zero Lower Bound
Global Imbalances and Currency Wars at the ZLB
Date Written: February 2020
Abstract
This paper explores the consequences of extremely low real interest rates in a world with integrated but heterogenous capital markets and nominal rigidities. We establish four main results: (i) Liquidity traps spread to the rest of the world through the current account, which we illustrate with a new Metzler diagram in quantities; (ii) Beggar-thy-neighbor currency and trade wars provide stimulus to the undertaking country at the expense of other countries; (iii) (Safe) public debt issuances and increases in government spending anywhere are expansionary everywhere; (iv) At the ZLB, net issuers of safe assets experience a disproportionate share of the global stagnation.
JEL Classification: E0, F3, F4, G1
Suggested Citation: Suggested Citation