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Global Imbalances and Policy Wars at the Zero Lower Bound

Author

Listed:
  • Ricardo J. Caballero
  • Emmanuel Farhi
  • Pierre-Olivier Gourinchas
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.

Suggested Citation

  • Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2015. "Global Imbalances and Policy Wars at the Zero Lower Bound," NBER Working Papers 21670, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21670
    Note: AP EFG IFM ME
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G01 - Financial Economics - - General - - - Financial Crises

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