Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-10T12:47:12.122Z Has data issue: false hasContentIssue false
  • English
  • Français

The US “Twin Deficits”: A Reappraisal

Published online by Cambridge University Press:  17 August 2016

Thepthida Sopraseuth
Thepthida Sopraseuth*
Affiliation:
EUREQua-University of Paris I Panthéon-Sorbonne
Get access

Résumé

Une importante littérature empirique a analysé, depuis le milieu des années 80, la relation entre les déficits budgétaires et commerciaux des Etats-Unis, sans jamais atteindre un consensus. Deux éléments peu-vent être pris en compte pour expliquer ces résultats contradictoires. La comparaison des données à niveau par rapport aux données stationnarisées a un impact sur les conclusions. On remarque, à côté de cela, que le lien entre les exportations nettes et le solde budgétaire des Etats-Unis, stationnarisés ou non, est instable. Ce manque de robustesse peut venir de changements dans la contribution relative des chocs de demande et d’oñre dans l’économie américaine : les chocs de demande génèrent généralement une corrélation positive entre les déficits commerciaux et fiscaux, tandis que les chocs d’offre impliquent une corrélation négative entre les deux séries. Afín de contrôler la relevance empirique de cette intuition, nous avons employé un modèle RBC standard. Avec différents taux estimés de volatilité des chocs d’offre et de demande, le modèle répond aux changements de corrélation entre la balance commerciale et fiscale des Etats-Unis pour chaque sous-exemple, exceptés les années 90.

Summary

Summary

Since the mid-1980s, an extensive empirical literature has investigated the relationship between the US fiscal and trade deficits without reaching any consensus. Two elements may account for these conflicting results. First, considering data in levels versus stationarized data has an impact on conclusions. Moreover, the link between the US net exports and government balance, whether stationarized or not, is unsteady. This lack of robustness may stem from changes in the relative contribution of demand and supply shocks in the US economy: demand shocks generate a positive correlation between trade and fiscal deficits while supply shocks imply a negative relationship between both series. In order to check the empirical relevance of this intuition, I use a standard Real Business Cycle model. With varying estimated volatility ratios of supply and demand shocks, the model succeeds in matching the switching magnitude of the correlation between the US balance of trade and fiscal deficits over each sub-sample except the 1990s.

Keywords

F32F41F32F41
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 65 , Issue 2 , 1999 , pp. 139 - 178
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1999 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

(*)

I benefited from discussions with P-Y Hénin, F. Boissay and M. Carré. I am grateful to the two anonymous referees for their helpful comments. I am also indebted to J-O Hairault for valuable suggestions and support. Mistakes and omissions are, of course, mine.

References

REFERENCES

Abell, J.D. [1990], Twin deficits during the 1980s: An empirical investigation, Journal of Macroeconomics, 12(1), pp. 81–96.Google Scholar
Ambler, S., Cardia, E., and Zimmermann, C. [1998], International transmission of the business cyclme in a multi-sectoral model, Working Paper n° 60, Center for Reserach on Economic Fluctuations and Employment.Google Scholar
Aschalter, D. [1985], Fiscal Policy and Aggregate Demand, American Economic Review, 75, pp. 117–127.Google Scholar
Backus, D.K., Kehoe, P.J. and Kydland, F.E. [1992], International real business cycles, Journal of Political Economy, 100(4), pp. 745–775.Google Scholar
Backus, D.K., Kehoe, P.J. and Kydland, F.E. [1994], Dynamics of the trade balance and the terms of trade: The j-curve?, American Economic Review, 84(1), pp. 84–103.Google Scholar
Backus, D.K., Kehoe, P.J. and Kydland, F.E. [1995], International business cycles: Theory versus evidence, in Cooley, T.F (ed.), Frontiers of Business Cycle Research, Princeton, Princeton University Press.Google Scholar
Barro, R.J. [1981], Output effects of government purchases, Journal of Political Economy, 81(6), pp. 1086–1121.Google Scholar
Baxter, M. [1995], International trade and business cycles, inGrossman, H. and Rogoff, K. (eds.), Handbook of International Economics, Amsterdam, North Holland, vol. 3, chapter 35.Google Scholar
Bec, F. [1994], La transmission internationale des fluctuations: une explication de la corrélation croisée des consommations, Revue Economique, 45, pp. 89–114.Google Scholar
Bec, F. and Hairault, J.O. [1996], Fiscal policies, public deficit restraints and european stabilization, Recherches Economiques de Louvain, 62(3–4), pp. 329–355.Google Scholar
Bec, F. and Hairault, J.O. [1997], Lesimplications de la structure des marchés financiers pour la dynamique des modèles d’équilibre général à deux pays, Revue d’Economie Politique, 107(4), pp. 480–494.Google Scholar
Blanchard, O. [1985], Debt, deficits and finite horizons, Journal of Political Economy, 93, pp. 223–247.Google Scholar
Cardia, E.[1991], The dynamics of a small open economy in response to monetary, fiscal and productivity shocks, Journal of Monetary Economics,28, pp. 411–434.Google Scholar
Christiano, L. and Eichenbaum, M. [1992], Current real business cycle theories and aggregate labor market fluctuations, American Economic Review, 6(4), pp. 1–9.Google Scholar
Cooley, T. and Ohanian, L. [1991], The cyclical behavior of prices, Journal of Monetary Economics, 28(1), pp. 25–60.Google Scholar
Danthine, J.R. and Donaldson, J.B. [1993], Methodological and empirical issues in real business cycle, European Economic Review, 37(1), pp. 1–35.Google Scholar
Darrat, A.F.[1988], Have budget deficits caused rising trade deficits?, Southern Economic Journal, 54(April), pp. 879–887.Google Scholar
Devereux, M., Gregory, A. and Smith, G. [1992], Realistic cross-country consumption correlations in atwo-country equilibrium business cycle model, Journal of International Money and Finance, 11, pp. 3–16.Google Scholar
Dewald, W.G. and Ulan, M. [1990], The twin deficit illusion, Cato Journal, 9(Winter), pp. 689–707.Google Scholar
Dlboolu, S. [1994], Accounting for the US current account deficits: An empirical investigation, Working Paper, Southern Illinois University.Google Scholar
Enders, W. and Lee, B.S. [1990], Current account and budget deficits: Twins or distant cousins?, Review of Economics and Statistics, 72(3), pp. 373–381.Google Scholar
Evans, P.[1988], Are consumers ricardian? Evidence for the United States, Journal of Political Economy, 96, pp. 983–1004.Google Scholar
Glick, R. and Rogoff, K. [1994], Global versus country-specific productivity shocks and the current account, Journal of Monetary Economics, 35, pp. 159–192.Google Scholar
Hairault, J.O. and Portier, F. [1995], Nominal rigidities and monopolistic competition: A new keynesian view, in Henin, P. (ed.), Advances in RBCResearch with Applications to the French and US Economies, Berlin, Springer.Google Scholar
Hodrick, R.J. and Prescott, E. [1997], Post war US business cycles: An empirical investigation, Journal of Money, Credit and Banking, 29, pp. 1–16.Google Scholar
Jarque, C. and Bera, A. [1980], Test for normality, homoscedasticity and serial independence of regression residuals, Economic Letters, (6), pp. 255–259.Google Scholar
Johansen, S. and Juselius, K. [1990], Maximum likelihood estimation and in-derence on cointegration with applications to the demand for money, Oxford Bulletin of Economics and Statistics, 52(2), pp. 169–210.Google Scholar
King, R.G., Plosser, C. and Rebelo, S. [1988], Production, growth and business cycles I: The basic neoclassical model, Journal of Monetary Economics, 21(2–3), pp. 196–232.Google Scholar
Kollman, R.[1995], Fiscal policy, productivity shocks and the US trade deficit, Working Paper 98, Institue of Empirical Macroeconomics.Google Scholar
Mendoza, E.G., Razin, A. and Tesar, L.L. [1994], Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption, Journal of Monetary Economics, 34, pp. 297–323.Google Scholar
Mendoza, E.G. and Tesar, L.L. [1995], Supply-side economics in global economy, NBER Working Paper n° 5086.Google Scholar
Normandin, M.[1994], Budget deficit persistence and the twin deficit hypothesis, CREFE Université du Quebec à Montreal.Google Scholar
Obstfeld, M. and Rogoff, K. [1995], Exchange rate dynamics redux, Journal of Political Economy, 103(3), pp. 624–660.Google Scholar
Rosenweig, J.A. and Tallman, E.W. [1993], Fiscal policy and trade adjustment: Are the deficits really twins?, Economic Inquiry, 31(October), pp. 580–594.Google Scholar
Sachs, J.[1981], The current account and macroeconomic adjustment in the 1970s, Brooking Papers of Economic Activity, 12, pp. 201–268.Google Scholar
Schlagenhauf, D.E. and Wrase, J.M. [1995], Liquidity and real activity in a simple open-economy model, Journal of Monetary Economics, 35(3), pp. 431–461.Google Scholar
Stockman, A.C. and Tesar, L.L. [1995], Tastes and technology in a two-country model of the business cycle: Explaining international comovements, American Economic Review, 85(1), pp. 168–185.Google Scholar