Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the US

• 成果类型: Article
• 署名作者: Kim, Soyoung; Roubini, Nouriel
• 署名单位: New York University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2007.05.012
• 发表日期: 2008
• 页码: 362-383
• 关键词: Real exchange rate; current account; government budget deficit; fiscal policy; VaR

摘要

In spite of concerns about twin deficits (fiscal and the current account deficits) for the United States economy, empirical evidence suggests that twin divergence is a more usual feature of the historical data, i.e., when fiscal accounts worsen, the current account improves and vice versa. This paper empirically studies the effects of fiscal policy (government budget deficit shocks) on the current account and the real exchange rate, during the flexible exchange rate regime period. Based on VAR (Vector Auto-Regression) models, we identified exogenous fiscal policy shocks after controlling for business cycle effects on fiscal balances. In contrast to the predictions of most theoretical models, the U.S. results suggest that an expansionary fiscal policy shock, or a government budget deficit shock, improve the current account and depreciate the real exchange rate. Increases in private savings and declines in investment contribute to the current account improvement while a nominal exchange rate depreciation, as opposed to a relative price level change, is mainly responsible for the real exchange rate depreciation. The twin divergence of fiscal balances and current account balances is also explained by the prevalence of output shocks, i.e. output shocks - more than fiscal shocks - appear to drive the co-movements of the current account and the fiscal balance. (c) 2007 Elsevier B.V. All rights reserved.