Working Paper

Export shocks and the zero bound trap

Abstract: When a small open economy experiences a sufficiently large negative export shock, it is vulnerable to falling into a zero bound trap. In addition, such a shock can have very large impact on the economy compared to the case when the zero bound is not a binding constraint. This could be one possible explanation as to why a country like Japan experienced much larger drop in output than the United States during the recent financial crisis.

Keywords: Monetary policy; Banks and banking, Central; Global financial crisis; Interest rates; Japan;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2010

Number: 63