The US “Twin Deficits”. A Reappraisal
Since the mid-1980s, an extensive empirical literature has investegated the relationship between the US fiscal and trade deficits without reaching any consensus. Two elements may account for these conflicting results. First, considering data in levels versus stationarized data has an impact on conclusions. Moreover, the link between the US next exports and govenment balance, whether stationarized or not, is unsteady. This lack of robustness may stem from changes in the relative contribution of demand and supply shocks in the US economy : demand shocks generate a positive correlation between trade and fiscal deficits while supply shocks imply a negative relationship between both series. In order to check empirical relevance of this intuition, I use a standard Real Business Cycle model. With varying estimated volatility ratios of supply and demand shocks, the model succeeds in matching the switching magnitude of the correlation between the US balance of trade and fiscal deficits over each sub-sample except the 1990s.
|Date of creation:||01 Jun 1999|
|Contact details of provider:|| Postal: Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10473945
Web page: https://uclouvain.be/en/research-institutes/immaq/ires
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ctl:louvre:1999021. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sebastien SCHILLINGS)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.