Real Interest Rates, Imbalances and the Curse of Regional Safe Asset Providers at the Zero Lower Bound

Pierre-Olivier Gourinchas and Helene Rey

No 22618, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The current environment is characterized by low real rates and by policy rates close to or at their lower bound in all major financial areas. We analyze these unusual economic conditions from a historical perspective and draw some implications for external imbalances, safe asset demand and the process of external adjustment. First, we decompose the fluctuations in the world consumption wealth ratio over long period of times and show that they anticipate movements of the real rate of interest. Second, our estimates suggest that the world real rate of interest is likely to remain low or negative for an extended period of time. In this context, we argue that there is a renewed Triffin dilemma where safe asset providers face a trade-off in terms of external exposure and real appreciation of their currency. This tradeoff is particularly acute for smaller economies. This is the ‘curse of the regional safe asset provider.’ We discuss how this ‘curse’ is playing out for two prominent regional safe asset providers: core EMU and Switzerland.

JEL-codes: E2 E4 F4 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-mac, nep-opm and nep-sog
Note: AP EFG IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

Downloads: (external link)
http://www.nber.org/papers/w22618.pdf (application/pdf)

Related works:
Working Paper: Real Interest Rates, Imbalances and the Curse of Regional Safe Asset Providers at the Zero Lower Bound (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:22618

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w22618

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().