A Party without a Hangover? On the Effects of U.S. Government Deficits
IMF Working Papers, August 1, 2007
Source details
- Canonical URL
- A Party without a Hangover? On the Effects of U.S. Government Deficits
Other formats
Bibliographic details
- Authors: Douglas Laxton, Michael Kumhof
- Published: August 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867664.001
Model and approach
- Develops a 2-country New Keynesian overlapping generations model suitable for the joint evaluation of monetary and fiscal policies.
- Highlights the suitability of overlapping generations framework for analyzing permanent changes in public or private sector savings rates.
- Argues that conventional infinite horizon models are ill-equipped to deal with issues involving permanent changes in public or private sector savings rates.
Key findings
- A permanent increase in U.S. government deficits raises the world real interest rate.
- A permanent increase in U.S. government deficits significantly increases U.S. current account deficits, especially in the medium- to long-run.
- A simultaneous increase in non-U.S. savings lowers the world real interest rate.
- A simultaneous increase in non-U.S. savings further increases U.S. current account deficits.
Themes and subjects
- Consumption
- Current account deficits
- Fiscal policy
- Public debt
- Real interest rates
Keywords and technical focus
- present discounted value
- WP
Publication and authorship (as presented on the page)
- By Douglas Laxton, Michael Kumhof
- August 1, 2007
Laxton, Douglas, and Michael Kumhof. "A Party without a Hangover? On the Effects of U.S. Government Deficits", IMF Working Papers 2007, 202 (2007).
Content in this bundle
- 1. OverlappingGenerationsHouseholds