The Current Account, Fiscal Policy, and Medium-Run Income Determination
AbstractThis article presents a new framework for analyzing the simultaneous determination of current account imbalances and the path of national income. Using standard macroeconomic behavioral relationships, it first examines how and why current account deficits matter by investigating links between domestic consumption, government spending, output, saving, investment, interest rates, and capital flows. Central to the model is the distinction between aggregate output and expenditure that enables dissection of the effects of discretionary fiscal change on the current account and national income. The framework yields results relevant to the twin deficits hypothesis that are contrary to those of standard models. (JEL "E10", "F32") Copyright 2004 Western Economic Association International.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Contemporary Economic Policy.
Volume (Year): 22 (2004)
Issue (Month): 3 (07)
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Find related papers by JEL classification:
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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