scholarly journals Secular Stagnation in the Open Economy

2016 ◽  
Vol 106 (5) ◽  
pp. 503-507 ◽  
Author(s):  
Gauti B. Eggertsson ◽  
Neil R. Mehrotra ◽  
Lawrence H. Summers
Keyword(s):  
Interest Rates ◽  
Open Economy ◽  
Capital Markets ◽  
Capital Flows ◽  
Global Economy ◽  
Output Growth ◽  
Secular Stagnation ◽  
Positive Externalities ◽  
Neighbor Effects ◽  
Low Interest Rates

Conditions of secular stagnation--low interest rates, below target inflation, and sluggish output growth--now characterize much of the global economy. We consider a simple two-country textbook model to examine how capital markets transmit secular stagnation and to study policy externalities across countries. We find capital flows transmit recessions in a world with low interest rates and that policies that attempt to boost national saving are beggar-thy-neighbor. Monetary expansion cannot eliminate a secular stagnation and may have beggar-thy-neighbor effects, while sufficiently large fiscal interventions can eliminate a secular stagnation and carry positive externalities.

scholarly journals CRYPTOCURRENCIES OR CAPITAL MARKETS. COMPARATIVE ANALYSIS OF INVESTMENT EFFICIENCY IN 2011-2020

2022 ◽  
Author(s):  
Sylwester Kozak ◽  
Seweryn Gajdek
Keyword(s):  
Comparative Analysis ◽  
Interest Rates ◽  
Capital Markets ◽  
The Other ◽  
Investment Efficiency ◽  
Rates Of Return ◽  
Global Capital ◽  
Low Interest Rates ◽  
Investment Tool ◽  
Global Financial System

Cryptocurrencies have become an important element of the global financial system and a frequent investment tool in the last decade. The aim of this paper is to compare the efficiency of investments in the cryptocurrency market with investments in global capital markets. The study used the quotations of the analyzed instruments in the years 2011-2020. The investment efficiency was estimated using Sharpe and Sortino ratios. Research has shown that investments in cryptocurrencies were the most effective. They brought, on average, the highest daily rates of return, but on the other hand, they were characterized by the highest risk. Such a result could have been significantly influenced by the widespread persistence of ultra-low interest rates and a decline in the attractiveness of debt securities. The best results were obtained for investments in bitcoin and ethereum, which have the largest share of cryptocurrency market capitalization.

scholarly journals Global Economy and Turkey: 2016 and Beyond

2016 ◽  
Author(s):  
Durmuş Yılmaz
Keyword(s):  
Open Economy ◽  
Capital Flows ◽  
Global Economy ◽  
Emerging Market ◽  
Commodity Prices ◽  
High Growth ◽  
International Standards ◽  
Business Community ◽  
Structural Problems ◽  
Industrial Sectors

Irrespective of whether advanced economies (AEs) or emerging market economies (EMEs), the number one problem of the global economy is not being able to generate a satisfactory growth. Income levels is in some countries are barely above the per-crisis level. Despite ample liquidity due to quantitative monetary policies, consumption and investment demands are weak. Because high level of indebtedness deter economic agents from using credit. Credit markets still do not function well either. Quantitative easing policies have been successful in containing further deterioration. Despite ample liquidity inflation has not risen, but it did delivered the expected growth. Because banking system in AEs is weak and monetary transmission mechanisms are not functioning well. As for EMEs, commodity prices and World trade appears to be weak; economic growth are slowing down, capex is visibly falling in heavy industrial sectors due to already existing excess capacity. The academia as well as the business community are worried about the appropriateness of the present policies in case another recession comes, central banks will have little ammunition to deal with it. The option being talked of now is what is dubbed as “helicopter Money”. Turkey being an open economy, has been and will be effected by the developments in the global economy through trade, capital flows and expectation channels. By international standards, Turkey have a reasonable growth rate of 3 to 4 %, implying a new growth era where high growth cycle ended due to changing global financial conditions and its structural problems. Future growth performance will depend on the level of investments and savings to finance it. As her own saving is low, foreign capital flows is crucial. High inflation and interest rate are the two negatives, but it has a strong fiscal position, debt / GDP is 32.3%, the budget is almost balanced, producing primary surplus which proved it is resilience in the face of recent failed coup and the negative attitudes displayed by the rating agencies.

Monetary Policy and Unnatural Low Interest Rates: Secular Stagnation or Financial Repression?

2019 ◽  
Vol 70 (2) ◽  
pp. 99-135 ◽  
Author(s):  
Ad van Riet
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Real Interest Rate ◽  
Central Banks ◽  
Potential Growth ◽  
Secular Stagnation ◽  
Financial Repression ◽  
Low Interest Rates ◽  
Equilibrium Real Interest Rate

Abstract Market interest rates have been on a declining trend over the past 35 years in all advanced economies, even reaching negative territory in some European jurisdictions. This article reviews two competing explanations for the occurrence of unnatural low interest rates. The secular stagnation hypothesis of Keynesian origin maintains that persistent non-monetary factors have caused a structural excess of desired savings over planned investments which steadily pushed down the equilibrium real interest rate that is consistent with a balanced economy. Major central banks in turn failed to sufficiently lower their monetary policy rates to revive aggregate demand, leading to anaemic economic recoveries and hysteresis effects. By contrast, the financial repression doctrine argues that central banks pursued low interest rates to ease the government budget constraint and serve political objectives. The Austrian School of Economics states that this monetary easing bias sowed the seeds of repeated boom/bust cycles and created economic distortions that dragged down potential growth and the equilibrium real interest rate. The core of the debate appears to be the long-standing controversy about the desirable role for the state in guiding the economy on a higher potential growth path as opposed to relying on the efficiency of market processes in generating prosperity.

scholarly journals On secular stagnation and low interest rates: Demography matters

2019 ◽  
Vol 22 (3) ◽  
pp. 262-278 ◽  
Author(s):  
Giuseppe Ferrero ◽  
Marco Gross ◽  
Stefano Neri
Keyword(s):  
Interest Rates ◽  
Secular Stagnation ◽  
Low Interest Rates

scholarly journals What Happens if Central Banks Misdiagnose a Slowdown in Potential Output

2019 ◽  
Vol 19 (208) ◽  
Author(s):  
Bas Bakker
Keyword(s):  
Interest Rates ◽  
Central Banks ◽  
Output Growth ◽  
Potential Output ◽  
Real Model ◽  
Supply Problem ◽  
Return On Capital ◽  
Low Interest Rates ◽  
Output Ratio ◽  
Potential Output Growth

In the last few decades, real GDP growth and investment in advanced countries have declined in tandem. This slowdown was not the result of weak demand (there has been no shift along the Okun curve), but of a decline in potential output growth (which has shifted the Okun curve to the left). We analyze what happens if central banks mistakenly diagnose the problem as insufficient demand, when it is actually a supply problem. We do this in a real model, in which inflation is not an issue. We show that aggressive central bank action may revive gross investment, but it will not revive net investment or growth. Moreover, low interest rates will lead to an increase in the capital output ratio, a low return on capital and high leverage. We show that these forecasts are in line with what has happened in major advanced countries.

scholarly journals Reasons for the Demise of Interest: Savings Glut and Secular Stagnation or Central Bank Policy?

2021 ◽  
Vol 24 (1) ◽  
Author(s):  
Thomas Mayer ◽  
Gunther Schnabl
Keyword(s):  
Interest Rates ◽  
Capital Investment ◽  
Business Cycle Theory ◽  
Secular Stagnation ◽  
Soft Budget Constraints ◽  
Austrian Business Cycle Theory ◽  
Low Interest Rates ◽  
Austrian Business Cycle ◽  
Ex Nihilo ◽  
Fixed Capital Investment

This article compares the Keynesian, neoclassical and Austrian expla-nations for low interest rates and sluggish growth. From a Keynesian and neoclassical perspective, low interest rates are attributed to aging societies, which save more for the future (global savings glut). Low growth is linked to slowing population growth and a declining marginal efficiency of investment as well as to declining fixed capital investment due to digitalization (secular stagnation). In contrast, from the perspective of Austrian business cycle theory, interest rates were decreased step by step by central banks to stimulate growth. This paralyzed investment and lowered growth in the long term. This study shows that the ability of banks to extend credit ex nihilo and the requirement of time to produce capital goods invalidates the permanent IS identity assumed in the Keynesian theory. Furthermore, it is found that there is no empirical evidence for the hypotheses of a global savings glut and secular stagnation. Instead, low growth can be explained by the emergence of quasi “soft budget constraints” as a result of low interest rates, which reduce the incentive for banks and enterprises to strive for efficiency.

scholarly journals Is zero the safe real rate?

2021 ◽  
Vol 16 (2) ◽  
Author(s):  
Andreas Mix
Keyword(s):  
Central Bank ◽  
Interest Rates ◽  
Economic History ◽  
Market Forces ◽  
Short Term ◽  
Real Rate ◽  
Equity Prices ◽  
Secular Stagnation ◽  
Low Interest Rates ◽  
History Of

The current economic debate with regards to the secular trend of ever lower, even negative, safe real interest rates is dominated by Keynesian, neoclassical and Austrian explanations. The former (two) argue that the interdependence phenomena of a global savings glut and a secular stagnation cause an oversupply of savings and thus drive down rates. From this position, central bank merely react to market forces. The latter dissent and argue that it was rather the other way around and an asymmetric central bank policy aimed at propping up equity prices led to the secular stagnation now quoted for its justification. In contrast, from the perspective of a critique of ideology, safe real rates where neither driven down by market forces nor central banks but by the weight of being not reasonably safe but riskless. Specifically, I argue that by equating the riskless return with the short-term interest rate, Black and Scholes (1973) state a tautology and imply that both rates shall be zero. In the subsequent inquiry, I show that this argument allows for a neat narration of the economic history of the neoliberal age. Furthermore, I explain why under current conditions ultra low interest rates fail to translate into inflation.

scholarly journals Safe Asset Scarcity and Aggregate Demand

2016 ◽  
Vol 106 (5) ◽  
pp. 513-518 ◽  
Author(s):  
Ricardo J. Caballero ◽  
Emmanuel Farhi ◽  
Pierre-Olivier Gourinchas
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Capital Flows ◽  
Crucial Role ◽  
Aggregate Demand ◽  
The Other ◽  
The Exchange Rate

We explore the consequences of safe asset scarcity on aggregate demand in a stylized IS-LM/Mundell Fleming style environment. Acute safe asset scarcity forces the economy into a “safety trap” recession. In the open economy, safe asset scarcity spreads from one country to the other via capital flows, equalizing interest rates. Acute global safe asset scarcity forces the economy into a global safety trap. The exchange rate becomes indeterminate but plays a crucial role in both the distribution and the magnitude of output adjustment across countries. Policies that increase the net supply of safe assets somewhere are output enhancing everywhere.

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