Work

Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies

Year: 2022

Type: report

Abstract: We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneousagent model of the world economy.In the long run, increases in government debt anywhere raise the world interest rate and increase private wealth everywhere.In the short run, a country with a larger-than-average fiscal deficit experiences both a large increase in private savings ("excess savings") and a small but persistent current account deficit (a slow-motion "twin deficit").These patterns are consistent with the evolution of the world's balance of payments since the beginning of the Covid pandemic.

Source: National Bureau of Economic Research

DOI: 10.3386/w30185

Authors: Rishabh Aggarwal, Adrien Auclert, Matthew Rognlie, Ludwig Straub

Institutions: National Bureau of Economic Research, Stanford University, Northwestern University, Harvard University

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: National Science Foundation

Awards: CAREER: Macroeconomic Implications of Microeconomic Heterogeneity, Heterogeneity, Household Behavior, and the Transmission of Aggregate Shocks

OpenAlex ID: W4283707735

Cites: 71

Cited by: 16

Related to: 10