Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies

Rishabh Aggarwal, Adrien Auclert, Matthew Rognlie and Ludwig Straub

No 30185, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneous-agent model of the world economy. In the long run, increases in government debt anywhere raise the world interest rate and increase private wealth everywhere. In the short run, a country with a larger-than-average fiscal deficit experiences both a large increase in private savings (“excess savings”) and a small but persistent current account deficit (a slow-motion “twin deficit”). These patterns are consistent with the evolution of the world’s balance of payments since the beginning of the Covid pandemic.

JEL-codes: E21 E62 F32 F41 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-ban, nep-dge and nep-opm
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Published as Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies , Rishabh Aggarwal, Adrien Auclert, Matthew Rognlie, Ludwig Straub. in NBER Macroeconomics Annual 2022, volume 37 , Eichenbaum, Hurst, and Ramey. 2023

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Journal Article: Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies (2023)
Chapter: Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies (2022)
Working Paper: Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies (2022)
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