Narrowing the US twin deficits: simulations with a world macroeconometric model
AbstractIn this paper we extend the macroeconometric model developed in Bagnai (2004) by linking it to a submodel for the Japanese economy, and we utilize this extended model to investigate several hypotheses of reduction in the US twin deficits. The Japanese submodel is specified and estimated along the lines set out in Bagnai and Carlucci (2003), using the “cointegration with endogenous structural break” estimation method of Gregory and Hansen (1996). The estimation results show that the Japanese economy underwent a major structural change after the first oil-price shock. The “twin deficits” simulations consider two policy instruments: a US dollar exchange rate devaluation, and a fiscal consolidation, carried out through a decrease in US government consumption. We analyze both different sizes and different timing of these policy measures, as well as their interactions, in order to evaluate their effectiveness, and the costs they impose on the partner countries (in particular, on the Euro area and Japan).
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Bibliographic InfoPaper provided by EconWPA in its series International Trade with number 0411004.
Length: 46 pages
Date of creation: 14 Nov 2004
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twin deficits; structural break; econometric model; Japan; EMU; USA;
Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-11-22 (All new papers)
- NEP-CMP-2004-11-22 (Computational Economics)
- NEP-IFN-2004-11-22 (International Finance)
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