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Working Paper
Government consumption expenditures and the current account
This paper distinguishes between two components of government consumption, expenditure on final goods and expenditure on hours, and compares the effects of changes in these two on the current account. I find that changes in government expenditure on hours do not directly affect the current account and that their impact is considerably smaller than the impact produced by changes in government expenditure on final goods. These findings indicate that considering government consumption as entirely expenditure on final goods leads to overestimating its role in accounting for movements in the ...
Working Paper
The quantitative role of capital-goods imports in U.S. growth
Over the last 40 years, an increasing share of U.S. aggregate E&S investment expenditure has been allocated to capital-goods imports. While capital-goods imports were only 3.5 percent of E&S investment in 1967, by 2008 their share had risen tenfold to 36 percent. The goal of this paper is to measure the contribution of capital-goods imports to growth in U.S. output per hour using a simple growth accounting exercise. We find that capital-goods imports have contributed 20 to 30 percent to growth in U.S. output per hour between 1967 and 2008. More importantly, we find that capital-goods imports ...
Working Paper
Government employment and the dynamic effects of fiscal policy shocks
Since World War II, about 75 percent of government consumption in the U.S. economy has been spent on labor services. I distinguish the goods and the employment compensation components of government consumption in assessing the effects of fiscal shocks on main macroeconomic variables. Identifying exogenous fiscal shocks with the onset of military buildups, I show that they lead to a significant increase in hours worked and output in the government sector. Allowing for the distinction between the two components of government consumption improves the quantitative performance of the neoclassical ...
Journal Article
Understanding the twin deficits: new approaches, new results
Since 2002, the U.S. has seen the emergence of twin deficits?that is, a growing budget deficit along with a growing current account deficit, which reflects increasing U.S. borrowing from abroad. To some analysts, this situation seems very reminiscent of the early 1980s. In the earlier episode, there were significant tax rate cuts that were not matched by spending cuts, and between 1981 and 1986, the U.S. budget deficit went from 2.5% of GDP to about 5% of GDP and the current account went from being roughly in balance to a deficit of 3.3% of GDP. In 2001, there were tax rate cuts that were not ...
Working Paper
Fiscal Implications of the Federal Reserve's Balance Sheet Normalization
The paper surveys the recent literature on the fiscal implications of central bank balance sheets, with a special focus on political economy issues. It then presents the results of simulations that describe the effects of different scenarios for the Federal Reserve's longer-run balance sheet on its earnings remittances to the U.S. Treasury and, more broadly, on the government's overall fiscal position. We find that reducing longer-run reserve balances from $2.3 trillion (roughly the current amount) to $1 trillion reduces the likelihood of posting a quarterly net loss in the future from 30 ...