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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
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    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.
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    9. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
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    13. Ganelli, Giovanni, 2010. "The international effects of government spending composition," Economic Modelling, Elsevier, vol. 27(3), pages 631-640, May.
    14. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
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    17. Soyoung Kim & Nouriel Roubini, 2004. "Twin Deficit or Twin Divergence? Fiscal Policy, Current Account, and Real Exchange Rate in the US," Econometric Society 2004 North American Winter Meetings 271, Econometric Society.
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