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The dynamics among domestic saving, investment, and the current account balance in the USA: a long-run perspective

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  • Adian McFarlane

    (King’s University College at Western University)

  • Young Cheol Jung

    (Mount Royal University)

  • Anupam Das

    (Mount Royal University)

Abstract

We use time series methods to analyse the long- and short-run dynamics and inter-relationships between government savings, private savings, investment, and the current account balance in the USA for the period 1947Q1–2017Q3. We control for the impact of the nonlinear dynamics of GDP growth over the business cycle on the evolution of these variables. A few important results stand out. The relationships among the variables are time varying as we find three structural periods: (I) 1947Q1–1984Q3, (II) 1984Q4–1999Q4, and (III) 2000Q1–2017Q3. The impact of nonlinearities in GDP growth matters in each period, but the twin deficit hypothesis is supported only in the first period. Generally, we also find no evidence to conclude that the Ricardian equivalence hypothesis holds over the full sample period. Finally, we cannot conclude that the Feldstein–Horioka puzzle with respect to private or government savings holds over the three structural periods.

Suggested Citation

  • Adian McFarlane & Young Cheol Jung & Anupam Das, 2020. "The dynamics among domestic saving, investment, and the current account balance in the USA: a long-run perspective," Empirical Economics, Springer, vol. 58(4), pages 1659-1680, April.
    • Handle: RePEc:spr:empeco:v:58:y:2020:i:4:d:10.1007_s00181-018-1566-9
    DOI: 10.1007/s00181-018-1566-9
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    2. António Afonso & José Carlos Coelho, 2023. "Twin deficits through the looking glass: time-varying analysis in the Euro area," Economic Change and Restructuring, Springer, vol. 56(4), pages 2087-2110, August.
    3. António Afonso & José Carlos Coelho, 2021. "Current Account Targeting Hypothesis versus Twin Deficit Hypothesis: the EMU experience of Portugal," Working Papers REM 2021/0182, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    4. António Afonso & José Carlos Coelho, 2021. "60%, -4% And 6%, a Tale of Thresholds for EU Fiscal and Current Account Developments," EconPol Working Paper 69, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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    More about this item

    Keywords

    Saving; Investment; Current account; Cointegration; Error correction model;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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