The twin deficit theory in a dynamic consistent stock-flow model for an open economy

André Mellini () and Guilherme Jonas Costa da Silva ()

Brazilian Journal of Political Economy, 2022, vol. 42, issue 3, 761-784

Abstract: This paper aims to incorporate explicitly the twin deficits theory in a stock-flowconsistent model to analyze the impact of fiscal policy and public debt dynamics in a post-Keynesian model, investigating the effects and limitations. Even rejecting many neoclassicalhypotheses, fiscal policy has limitation to stimulate permanently economic growth becauseif it’s incompatible with balance of payment equilibrium, net external debt would rise andbecome unsustainable. Finally, this hypothesis is tested empirically and it is verified that thedynamics of the fiscal policy and external position are associated when specified accordingto Godley and Cripps (1983) and modified by Pérez Caldentey (2007). JEL Classification: E12; E62; F41; F43.

Keywords: Stock-flow consistent; fiscal policy; external constraint; twin deficits; post- Keynesianism (search for similar items in EconPapers)
Date: 2022
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