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Discussion Paper Details

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Title: Real interest rates, exchange rates and the ZLB: on Secular Stagnation

Author(s): Sweder van Wijnbergen

Publication Date: April 2018

Keyword(s): aging, equilibrium real interest rates, import tariffs, productivity change, real exchange rates and the ZLB

Programme Area(s): International Macroeconomics and Finance

Abstract: What are the drivers of low real rates? What are the implications of the Zero Lower Bound for economic policy? To discuss these questions, we introduce a full general equilibrium model of the world economy within a simple (2 period) intertemporal structure. The model is simple enough to allow for full analytical solution yet sufficiently complex to allow us to address the impact of anticipated future productivity slow down, aging, structural reform and fiscal policy on real interest rates if markets clear and on aggregate economic activity if they do not (because of the ZLB). We extend both the equilibrium model and the ZLB variant to a more-goods-per-period structure to address (real) exchange rate policy and the macroeconomic impact of trade tariffs, like Trump's current trade war, on global economic activity.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12837

Bibliographic Reference

van Wijnbergen, S. 2018. 'Real interest rates, exchange rates and the ZLB: on Secular Stagnation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12837