Working Paper: NBER ID: w2650
Authors: John F. Helliwell
Abstract: Evidence from three multicountry models is used to assess the current account effects of U.S. and Japanese fiscal policies. Asymmetries in the effects of U.S. and Japanese policies are analyzed in some detail, and attributed to differences in country size, in trade patterns (which have only a small effect) and in the extent to which induced changes in real exchange rates switch demand from domestic to foreign output. Fiscal policy has substantial current account effects in the models. For example, switching $50 billion of sustained government spending from the United States to Japan would, in the third year, improve the U.S. current account by $24 billion and worsen that of Japan by $20 billion. Induced changes in nominal exchange rates are found to play a relatively small role in determining the effects of fiscal policy on the nominal current account.
Keywords: Fiscal Policy; International Imbalances; Current Account
JEL Codes: E62; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US government spending (H56) | US current account (F32) |
| US government spending (H56) | Japan current account (F32) |
| US fiscal policies (E62) | Japan current account (F32) |
| Japan fiscal policies (E62) | US current account (F32) |
| induced changes in nominal exchange rates (F31) | fiscal policy effects on nominal current account (E62) |