Eliminating the U.S. Federal Budget Deficit by 1993: The Interaction of Monetary and Fiscal Policy

Richard Herd and B. Ballis
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Richard Herd: OECD
B. Ballis: OECD

No 59, OECD Economics Department Working Papers from OECD Publishing

Abstract: This paper uses the OECD's economic model, INTERLINK, to examine the consequences of eliminating the U.S. federal government deficit. Such action could lead to either lower real interest rates, lower inflation rates or a smaller current account deficit, depending on the stance of monetary policy. The elimination of the U.S. Federal deficit over the medium term could significantly lower the U.S. inflation rate and improve the current account deficit, if nominal interest rates were held constant in the face of falling inflation rates. In the absence of a reduction in the fiscal deficit, a significant increase in interest rates would be necessary to achieve the same reduction in the inflation rate. If, however, policy tightening is not necessary to contain inflation, a reduction in the fiscal deficit might be accompanied by a fall in nominal and real interest rates. In this case, a reduction in the fiscal deficit would not necessarily result in an improvement in the current account ...

Souplesse de la production et inflation : Étude globale Cette étude porte sur la "ventilation" des variations de la croissance du revenu nominal entre la croissance réelle et l'inflation. Elle présente une analyse descriptive des données de la période d'après-guerre ainsi qu'une analyse par régression qui postule l'existence d'une ventilation dynamique stable. Cette analyse a été effectuée pour tous les pays Membres de l'OCDE. On admet en général que les pouvoirs publics ont la possibilité de maîtriser l'évolution du revenu nominal encore que l'étude présente également quelques données relatives aux rapports entre l'inflation et la croissance du revenu nominal et de la masse monétaire. On examine aussi le rôle des anticipations et de l'incertitude et leurs rapports avec l'action des pouvoirs publics ...

Date: 1988-12-01
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