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Generational accounting in open economies

  • Eric O'N. Fisher
  • Ken Kasa

Using data on U.S. and Japanese government debt, we calibrate a version of Weil's (1989) model and study the international and intergenerational consequences of recent fiscal policy. Assuming debt/GDP ratios stabilize at current levels, the model implies: (1) the world real interest rate rises by fewer than two basis points; (2) the United States runs small but persistent external deficits; and (3) current generations in the United States experience a slight increase in wealth, while future generations both at home and abroad suffer analogous decreases. Most of the wealth effects are intergenerational rather than international.

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File URL: http://www.frbsf.org/econrsrch/econrev/97-3/34-46.pdf
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Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1997)
Issue (Month): ()
Pages: 34-46

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Handle: RePEc:fip:fedfer:y:1997:p:34-46:n:3
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  1. Rosenberg, Alexander, 1992. "Economics--Mathematical Politics or Science of Diminishing Returns?," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226727233.
  2. Kenneth L. Judd, 1983. "Short-Run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Discussion Papers 559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report 102, Federal Reserve Bank of Minneapolis.
  4. Fehr, Hans & Kotlikoff, Laurence J., 1995. "Generational accounting in general equilibrium," Tübinger Diskussionsbeiträge 47, University of Tübingen, School of Business and Economics.
  5. Gale, David, 1971. "General equilibrium with imbalance of trade," Journal of International Economics, Elsevier, vol. 1(2), pages 141-158, May.
  6. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  7. Reuven Glick & Kenneth Rogoff, 1992. "Global Versus Country-Specific Productivity Shocks and the Current Account," NBER Working Papers 4140, National Bureau of Economic Research, Inc.
  8. Fisher, Eric O'n., 1990. "Sustainable balance of trade deficits," Journal of Monetary Economics, Elsevier, vol. 25(3), pages 411-430, June.
  9. Iwata, Kazumasa, 1991. "Budgetary balance, aging, and external balance: The future of the United States-Japan external imbalance," Journal of the Japanese and International Economies, Elsevier, vol. 5(4), pages 473-497, December.
  10. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June.
  11. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
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