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The Effects of Fiscal Policy on International Imbalances: Japan and the United States

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  • John F. Helliwell

Abstract

Evidence from three multicountry models is used to assess the current account effects of U.S. and Japanese fiscal policies. Asymmetries in the effects of U.S. and Japanese policies are analyzed in some detail, and attributed to differences in country size, in trade patterns (which have only a small effect) and in the extent to which induced changes in real exchange rates switch demand from domestic to foreign output. Fiscal policy has substantial current account effects in the models. For example, switching $50 billion of sustained government spending from the United States to Japan would, in the third year, improve the U.S. current account by $24 billion and worsen that of Japan by $20 billion. Induced changes in nominal exchange rates are found to play a relatively small role in determining the effects of fiscal policy on the nominal current account.

Suggested Citation

  • John F. Helliwell, 1988. "The Effects of Fiscal Policy on International Imbalances: Japan and the United States," NBER Working Papers 2650, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2650
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    Cited by:

    1. Bryant, R.C. & Helliwell, J.F. & Hooper, P., 1989. "Domestic And Cross-Border Consequences Of U.S. Macroeconomic Policies," Papers 68, Brookings Institution - Working Papers.
    2. Jon Cockerline & John F. Helliwell & Robert Lafrance, 1990. "Multicountry modeling of financial markets," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 305-363.
    3. Helliwell, John F., 1988. "Pour une vision à long terme de la coopération économique internationale," L'Actualité Economique, Société Canadienne de Science Economique, vol. 64(3), pages 313-335, septembre.

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