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Government consumption expenditures and the current account

  • Michele Cavallo
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    This paper distinguishes between two components of government consumption, expenditure on final goods and expenditure on hours, and compares the effects of changes in these two on the current account. I find that changes in government expenditure on hours do not directly affect the current account and that their impact is considerably smaller than the impact produced by changes in government expenditure on final goods. These findings indicate that considering government consumption as entirely expenditure on final goods leads to overestimating its role in accounting for movements in the current account balance.

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    File URL: http://www.frbsf.org/economic-research/files/wp05-03bk.pdf
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    Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2005-03.

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    Date of creation: 2005
    Date of revision:
    Handle: RePEc:fip:fedfwp:2005-03
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    1. Robert Kollmann, 1998. "U.S. trade balance dynamics: the role of fiscal policy and productivity shocks and of financial market linkages," ULB Institutional Repository 2013/7634, ULB -- Universite Libre de Bruxelles.
    2. Cardia, Emanuela, 1991. "The dynamics of a small open economy in response to monetary, fiscal, and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 411-434, December.
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    8. Davide Fiaschi, 1996. "Fiscal policies and growth," Working Papers 261, Dipartimento Scienze Economiche, Universita' di Bologna.
    9. Marianne Baxter & Mario J. Crucini, 1992. "Business cycles and the asset structure of foreign trade," Discussion Paper / Institute for Empirical Macroeconomics 59, Federal Reserve Bank of Minneapolis.
    10. Kim, Soyoung & Roubini, Nouriel, 2008. "Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S," Journal of International Economics, Elsevier, vol. 74(2), pages 362-383, March.
    11. Fabio Ghironi, 2000. "Macroeconomic Interdependence under Incomplete Markets," Boston College Working Papers in Economics 471, Boston College Department of Economics, revised 07 Feb 2003.
    12. Yi, Kei-Mu, 1993. "Can government purchases explain the recent U.S. net export deficits?," Journal of International Economics, Elsevier, vol. 35(3-4), pages 201-225, November.
    13. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Expansionary fiscal shocks and the trade deficit," International Finance Discussion Papers 825, Board of Governors of the Federal Reserve System (U.S.).
    14. Giovanni Ganelli, 2005. "The International Effects of Government Spending Composition," IMF Working Papers 05/4, International Monetary Fund.
    15. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
    16. Michele Cavallo & Fabio Ghironi, 2000. "Net Foreign Assets and the Exchange Rate: Redux Revived," Boston College Working Papers in Economics 505, Boston College Department of Economics, revised 01 Feb 2002.
    17. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
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