Finite horizons and the twin deficits
This paper uses Blanchard's (1985) model to study the relationship between budget deficits and trade deficits. The model is applied to annual post-war data from the U.S., Japan, and Germany. I find that in all three countries there is a significant link between trade deficits and budget deficits, holding constant expected changes in GNP and government expenditure. However, the implied planning horizons are quite different across countries. In particular, the implied planning horizon in the U.S. is only about 3 to 4 years, whereas in Japan it is 71 years and in Germany it is 31 years.
Volume (Year): (1994)
Issue (Month): ()
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