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Step away from the zero lower bound : small open economies in a world of secular stagnation

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dc.contributor.author Corsetti, Giancarlo
dc.contributor.author Mavroeidi, Eleonora
dc.contributor.author Thwaites, Gregory
dc.contributor.author Wolf, Martin
dc.date.accessioned 2018-09-27T12:17:16Z
dc.date.available 2018-09-27T12:17:16Z
dc.date.issued 2018-05
dc.identifier.uri http://hdl.handle.net/10230/35527
dc.description.abstract We study how small open economies can escape from deation and unemployment in a situation where the world economy is permanently depressed. Building on the framework of Eggertsson et al. (2016), we show that the transition to full employment and at-target inflation requires real and nominal depreciation of the exchange rate. However, because of adverse income and valuation effects from real depreciation, the escape can be beggar thy self, raising employment but actually lowering welfare. We show that as long as the economy remains financially open, domestic asset supply policies or reducing the effective lower bound on policy rates may be inffective or even counterproductive. However, closing domestic capital markets does not necessarily enhance the monetary authorities' ability to rescue the economy from stagnation.
dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries ADEMU Working Paper Series;132
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
dc.rights.uri https://creativecommons.org/licenses/by/4.0/
dc.subject.other Small open economy
dc.subject.other Secular stagnation
dc.subject.other Capital controls
dc.subject.other Optimal policy
dc.subject.other Zero lower bound
dc.title Step away from the zero lower bound : small open economies in a world of secular stagnation
dc.type info:eu-repo/semantics/workingPaper
dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
dc.rights.accessRights info:eu-repo/semantics/openAccess


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