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A Contagious Malady? Open Economy Dimensions of Secular Stagnation
March 15, 2016Macro, Trade, and Finance Seminar Series

Speaker: Neil Mehrotra is an Assistant Professor of Economics at Brown University. More »

Abstract: We extend the idea of secular stagnation (Hansen (1939), Summers (2013)) to a two country open economy world with integrated financial markets. Our framework also allows us to incorporate the global savings glut hypothesis (Bernanke (2015)) into a secular stagnation framework. We consider varying degrees of capital market integration and show that, when the world natural rate of interest is negative, one or both countries may be in a secular stagnation (binding zero lower bound, deflation, and persistent output gap). Capital controls can be beneficial for the country that has a positive natural rate under autarky. In our setting, reserve accumulation may either cause or exacerbate a secular stagnation by further lowering the world natural rate of interest. Policy responses include a global increase in the inflation target or fiscal policy to raise the world natural rate of interest. The gains from monetary and/or fiscal policy coordination are substantial in our framework.

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Last Updated: Mar 03, 2016

The Macro, Trade, and Finance Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers from the fields of macroeconomics, growth, trade, international integration, and finance to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Last Updated: Jul 27, 2015

Event Details
  • Date: March 15, 2015
  • Location: I2-210
  • Time: 1:00 - 2:30 PM
  • CONTACT: Shweta Mesipam
  • smesipam@worldbank.org

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