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Protectionist Trade Barriers to Threaten Policy-induced Debt Trap

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  • Xing, Victor

Abstract

BIS working paper highlighted monetary authorities’ asymmetrical policies that are “too timid” in leaning against financial booms but too aggressive and persistent in leaning against financial busts, thus giving rise to a debt trap. Disinflationary effects of globalization induced persistent policy accommodation and encouraged leveraged risk-taking, and the ensuing systemic vulnerability to higher interest rates are at risk from protectionist trade policies. Tariff-induced price pressure and rising federal deficits as a result of tax reform would exacerbate effects of global quantitative tightening (waning unconventional easing) and threaten the post-crisis “lower for longer” paradigm. Heightened volatility as a result of higher bond yields would increase the likelihood of dovish Fed policy reactions, for both the U.S. and other advanced economies cannot tolerate higher interest rates under a policy-led debt trap.

Suggested Citation

  • Xing, Victor, 2018. "Protectionist Trade Barriers to Threaten Policy-induced Debt Trap," MPRA Paper 84964, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:84964
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    More about this item

    Keywords

    Debt trap; trade barrier; quantitative tightening;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

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