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Destabilizing an Unstable Economy

Author

Listed:
  • Dimitri B. Papadimitriou
  • Michalis Nikiforos
  • Gennaro Zezza

Abstract

Our latest strategic analysis reveals that the US economy remains fragile because of three persistent structural issues: weak demand for US exports, fiscal conservatism, and a four-decade trend in rising income inequality. It also faces risks from stagnation in the economies of the United States' trading partners, appreciation of the dollar, and a contraction in asset prices. The authors provide a baseline and three alternative medium-term scenarios using the Levy Institute's stock-flow consistent macro model: a dollar appreciation and reduced growth in US trading partners scenario; a stock market correction scenario; and a third scenario combining scenarios 1 and 2. The baseline scenario shows that future growth will depend on an increase in private sector indebtedness, while the remaining scenarios underscore the linkages between a fragile US recovery and instability in the global economy.

Suggested Citation

  • Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2016. "Destabilizing an Unstable Economy," Economics Strategic Analysis Archive sa_mar_16, Levy Economics Institute.
  • Handle: RePEc:lev:levysa:sa_mar_16
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    References listed on IDEAS

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    1. Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos & Gennaro Zezza, 2015. "Fiscal Austerity, Dollar Appreciation, and Maldistribution Will Derail the US Economy," Economics Strategic Analysis Archive sa_may_15, Levy Economics Institute.
    2. Robert N. McCauley & Patrick McGuire & Vladyslav Sushko, 2015. "Global dollar credit: links to US monetary policy and leverage," Economic Policy, CEPR;CES;MSH, vol. 30(82), pages 187-229.
    3. Edward N. Wolff & Ajit Zacharias & Thomas Masterson, 2012. "Trends In American Living Standards And Inequality, 1959–2007," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(2), pages 197-232, June.
    4. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza & Greg Hannsgen, 2014. "Is Rising Inequality a Hindrance to the US Economic Recovery?," Economics Strategic Analysis Archive sa_apr_14, Levy Economics Institute.
    5. Michalis Nikiforos, 2015. "A Nonbehavioral Theory of Saving," Economics Working Paper Archive wp_844, Levy Economics Institute.
    6. Wynne Godley, 1999. "Seven Unsustainable Processes: Medium-Term Prospects and Policies for the United States and the World," Economics Strategic Analysis Archive 99-10, Levy Economics Institute.
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