Budget Deficits and Current Account in Japan and the U.S.: An Empirical Evidence on the Twin Deficits Hypothesis
AbstractThis paper theoretically examines the mechanism of the occurrence of gtwin deficitsh, which means that the budget balance influences the current account, and quantitatively analyzes the probability of the occurrence. Specifically, the author studies the cases of Japan and the U.S. to demonstrate that changes in liquidity constraint in households play an important role in the occurrence of twin deficits. The quantitative analysis indicates that Japan is likely to have had the mechanism where the deteriorating budget balance negatively influenced the current account in the 1990fs, but not as far as turning it into a deficit. On the other hand, in the U.S., the rapid expansion of the budget deficits since 2007 seems to have deteriorated the current account, which implies the occurrence of twin deficits.
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Bibliographic InfoPaper provided by Graduate School of Economics, Kobe University in its series Discussion Papers with number 1010.
Date of creation: Jun 2010
Date of revision:
Current Account; Budget Deficits; Twin deficits; Liquidity Constraint;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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