A Party Without a Hangover? On the Effects of U.S. Government Deficits

A Party Without a Hangover? On the Effects of U.S. Government Deficits
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Publisher : International Monetary Fund
Total Pages : 44
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ISBN-10 : UCSD:31822034969543
ISBN-13 :
Rating : 4/5 (43 Downloads)

Book Synopsis A Party Without a Hangover? On the Effects of U.S. Government Deficits by : Michael Kumhof

Download or read book A Party Without a Hangover? On the Effects of U.S. Government Deficits written by Michael Kumhof and published by International Monetary Fund. This book was released on 2007-08 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a 2-country New Keynesian overlapping generations model suitable for the joint evaluation of monetary and fiscal policies. We show that a permanent increase in U.S. government deficits raises the world real interest rate and significantly increases U.S. current account deficits, especially in the medium- to long-run. A simultaneous increase in non-U.S. savings lowers the world real interest rate and further increases U.S. current account deficits. We show that conventional infinite horizon models are ill-equipped to deal with issues that involve permanent changes in public or private sector savings rates.


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