a column by Luca Fornaro and Federica Romei for VOX: CEPR’s Policy Portal
Fiscal and current account surpluses make sense from a national perspective. Prudential fiscal and financial policies lead to an increase in national savings and current account surpluses of booming countries.
This column uses a model of the global economy to argue, however, that the world may become stuck in a global liquidity trap as a result. This paradox of global thrift may lead to a fall in global output and welfare.
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