Global Imbalances and Policy Wars at the Zero Lower Bound

Ricardo Caballero (), Emmanuel Farhi and Pierre-Olivier Gourinchas

No 21670, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores the consequences of extremely low real interest rates in a world with integrated but heterogenous capital markets, nominal rigidities and an effective lower bound (a ZLB for simplicity). We establish four main results: (i) At the ZLB, creditor countries export their recession abroad, 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) When there is a scarcity of safe assets, net issuers of safe assets import the recession from abroad.

JEL-codes: E0 F3 F4 G01 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-mon and nep-opm
Note: AP EFG IFM ME
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Citations: View citations in EconPapers (28)

Published as Ricardo J Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2021. "Global Imbalances and Policy Wars at the Zero Lower Bound," The Review of Economic Studies, vol 88(6), pages 2570-2621.

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Journal Article: Global Imbalances and Policy Wars at the Zero Lower Bound (2021)
Working Paper: Global Imbalances and Policy Wars at the Zero Lower Bound (2020)
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