Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262321 
Year of Publication: 
2022
Series/Report no.: 
MAGKS Joint Discussion Paper Series in Economics No. 22-2022
Publisher: 
Philipps-University Marburg, School of Business and Economics, Marburg
Abstract: 
Benigno and Fornaro (2014) show that an episode of low interest rates may harm an economy. Low interest rates trigger a consumption boom, labor shifts away from the tradable sector, learning spillovers from foreign technology decline and so do domestic total factor productivity, consumption and welfare. In this paper, we show that their conclusion of a financial resource curse does not hold in a world with capital as production factor. Low interest rates now trigger an investment boom, there is no shift of labor between sectors, total factor productivity remains unaffected. Our model confirms "textbook wisdom", i.e., an episode of low interest rates enhances welfare in a small open economy.
Subjects: 
capital accumulation
endogenous growth
macroeconomic integration
JEL: 
E22
F36
F43
Document Type: 
Working Paper

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