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The international transmission of asset market shocks in liquidity traps

Philippe Bacchetta et al.

Journal of International Economics2026https://doi.org/10.1016/j.jinteco.2026.104235article
AJG 4ABDC A*
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0.50

Abstract

We build a two-country heterogenous-agent non-Ricardian model featuring asset scarcity and financial frictions in international capital markets. Due to the non-Ricardian nature of our framework, a demand for liquidity emerges and the supply of bonds matters. We show that shocks affecting the supply or demand of assets have very different international spillovers for an economy in a liquidity trap. A decrease in the supply of assets issued abroad leads to an asset shortage domestically. In normal times, the nominal interest rate decreases, stimulating investment and output. In a liquidity trap, deflation hits instead and the currency appreciates, which may cause a recession.

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https://doi.org/https://doi.org/10.1016/j.jinteco.2026.104235

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@article{philippe2026,
  title        = {{The international transmission of asset market shocks in liquidity traps}},
  author       = {Philippe Bacchetta et al.},
  journal      = {Journal of International Economics},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1016/j.jinteco.2026.104235},
}

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The international transmission of asset market shocks in liquidity traps

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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