 The US “Twin Deficits”. A ReappraisalNo 1999021, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Abstract: Since the mid-1980s, an extensive empirical literature has investegated the relationship between the US fiscal and trade deficits without reaching any consensus. Two elements may account for these conflicting results. First, considering data in levels versus stationarized data has an impact on conclusions. Moreover, the link between the US next exports and govenment balance, whether stationarized or not, is unsteady. This lack of robustness may stem from changes in the relative contribution of demand and supply shocks in the US economy : demand shocks generate a positive correlation between trade and fiscal deficits while supply shocks imply a negative relationship between both series. In order to check empirical relevance of this intuition, I use a standard Real Business Cycle model. With varying estimated volatility ratios of supply and demand shocks, the model succeeds in matching the switching magnitude of the correlation between the US balance of trade and fiscal deficits over each sub-sample except the 1990s. JEL-codes: F32 F41 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:1999021 Access Statistics for this paper More papers in Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.