A working paper, published by the Bank of England on October 7, finds the inability of some large-economy central banks to stabilise output gaps and inflation with interest rates at their lower bounds creates policy spillover problems for small open economies.

The authors, Alex Haberis and Anna Lipińska, say the way the spillover affects the small economy depends on whether domestic and foreign goods are substitutes or complements for domestic consumers. If they are substitutes, the drop in