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Current and Anticipated Deficits, Interest Rates and Economic Activity

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  • Olivier J. Blanchard

Abstract

There is widespread feeling that current deficits, in Europe and the U.S.,may hurt rather than help the recovery. This paper examines some of the issues involved, through a sequence of three models.The first model focuses on sustainability and characterizes its determinants. It suggests that the issue of sustainability may indeed ber elevant in some countries.The second model focuses on the effects of fiscal policy on real interestrates, and in particular on the relative importance of the level of deficits andthe level of debt in determining interest rates.The third model focuses on the effects of fiscal policy on the speed of the recovery. It shows how a sharply increasing fiscal expansion might be initially contractionary rather than expansionary.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1265.

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Date of creation: Jan 1984
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Publication status: published as Blanchard, Olivier J. "Current and Anticipated Deficits, Interest Rates and Economic Activity." European Economic Review, Vol. 25, (1984), pp. 7-27. North-Holland.
Handle: RePEc:nbr:nberwo:1265

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Cited by:
  1. Benz, Ulrich & Fetzer, Stefan, 2004. "Indicators for Measuring Fiscal Sustainability: A Comparative Application of the OECD-Method and Generational Accounting," Discussion Papers 118, Institut für Finanzwissenschaft, Albert-Ludwigs-Universität Freiburg.
  2. Stephen J. Turnovsky, 1985. "Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy," NBER Working Papers 1716, National Bureau of Economic Research, Inc.
  3. Buiter, Willem H, 1984. "Measuring Aspects of Fiscal and Financial Policy," CEPR Discussion Papers 13, C.E.P.R. Discussion Papers.
  4. Green, Christopher J. & Holmes, Mark J. & Kowalski, Tadeusz, 2001. "Poland: a successful transition to budget sustainability?," Emerging Markets Review, Elsevier, vol. 2(2), pages 161-183, June.
  5. Michael J. Artis & Marco Buti, 2000. "'Close-to-Balance or in Surplus': A Policy-Maker's Guide to the Implementation of the Stability and Growth Pact," Journal of Common Market Studies, Wiley Blackwell, vol. 38(4), pages 563-591, November.
  6. Christophe Tavera & Isabelle Cadoret, 1998. "L'impact du déficit public sur la vitesse de convergence des économies européennes," Économie et Prévision, Programme National Persée, vol. 132(1), pages 37-48.
  7. Alberto Petrucci, 2004. "Asset Accumulation, Fertility Choice and Nondegenerate Dynamics in a Small Open Economy," Working Papers 2004.121, Fondazione Eni Enrico Mattei.
  8. Magud, Nicolas E., 2008. "On asymmetric business cycles and the effectiveness of counter-cyclical fiscal policies," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 885-905, September.
  9. István Magas, 2011. "Financial liberalisation – The dilemmas of national adaptation," Public Finance Quarterly, State Audit Office of Hungary, vol. 56(2), pages 214-240.
  10. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," CESifo Working Paper Series 3948, CESifo Group Munich.
  11. William Smith, 1998. "Birth, Death, and Consumption: Overlapping Generations and the Random Walk Hypothesis," International Economic Journal, Taylor & Francis Journals, vol. 12(4), pages 105-116.
  12. Douglas W. Elmendorf & Jeffrey B. Liebman & David W. Wilcox, 2001. "Fiscal Policy and Social Security Policy During the 1990s," NBER Working Papers 8488, National Bureau of Economic Research, Inc.
  13. S. Sgherri, 2000. "The fiscal dimension of a common monetary policy: results with a non-Ricardian global model," WO Research Memoranda (discontinued) 615, Netherlands Central Bank, Research Department.
  14. Marina Azzimonti, 2013. "The political economy of balanced budget amendments," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 11-20.
  15. Martin Feldstein, 1984. "Can an Increased Budget Deficit Be Contractionary?," NBER Working Papers 1434, National Bureau of Economic Research, Inc.
  16. Sinai, Allen, 2006. "Deficits, expected deficits, financial markets, and the economy," The North American Journal of Economics and Finance, Elsevier, vol. 17(1), pages 79-101, March.
  17. Manmohan S. Kumar & Emanuele Baldacci, 2010. "Fiscal Deficits, Public Debt, and Sovereign Bond Yields," IMF Working Papers 10/184, International Monetary Fund.
  18. Bruno Ducoudré, 2005. "Fiscal policy and interest rates," Documents de Travail de l'OFCE 2005-08, Observatoire Francais des Conjonctures Economiques (OFCE).

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