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A Party without a Hangover? On the Effects of U.S. Government Deficits, Douglas Laxton, Michael Kumhof

This paper develops a 2-country New Keynesian overlapping generations model suitable for the joint evaluation of monetary and fiscal policies. We show that a permanent increase in U.S. government deficits raises the world real interest rate and 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 and further increases U.S. current account deficits. We show that conventional infinite horizon models are ill-equipped to deal with issues that involve permanent changes in public or private sector savings rates
Table Of Contents
Contents; I. Introduction; II. TheModel; A. Households; 1. Overlapping Generations Households; 2. Liquidity Constrained Households; 3. Aggregate Household Sector; B. Firms and Unions; 1. Manufacturers; 2. Unions; 3. Import Agents; 4. Distributors; 5. Retailers; C. Government; 1. Fiscal Policy; 2. Monetary Policy; D. Equilibriumand Balance of Payments; III. Calibration; IV. Implications of U.S. Government Deficits; A. Useful Steady-State Relationships; B. The Quantitative Predictions of the Two Models; V. Implications of Government Spending Cuts
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (40 p.)
Specific Material Designation
Form Of Item

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