Abstract
Ever since Greece experienced its debt crisis, fiscal discussion has been “Hellenized” — that is, there are constant warnings that other countries, including the United States, are on the verge of a similar crisis. But can countries that borrow in their own currency experience Greek-type crises? I argue, based both on evidence and on simple modeling, that the answer is no.
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Notes
I am finessing a tricky issue here: the entry into the liquidity trap itself requires some kind of shock, since we do not think of the zero lower bound as binding in the steady state. The sudden stop must then be overlaid on this preexisting shock. This does not, however, change the basic insight.
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Additional information
*Paul Krugman is Professor of Economics and International Affairs at Princeton University.
