Productivity Shocks, Budget Deficits and the Current Account

36 Pages Posted: 25 Aug 2005

See all articles by Matthieu Bussière

Matthieu Bussière

Banque de France

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Gernot J. Müller

University of Tuebingen - Department of Economics

Date Written: August 2005

Abstract

Currently the U.S. is experiencing record budget and current account deficits, a phenomenon familiar from the Twin Deficits discussion of the 1980s. In contrast, during the 1990s productivity growth has been identified as the primary cause of the U.S. current account deficit. We suggest a theoretical framework which allows to evaluate empirically the relative importance of budget deficits and productivity shocks for the determination of the current account. Using a sample of 21 OECD countries and time series data from 1960 to 2003 we find little evidence for a contemporaneous effect of budget deficits on the current account, while country-specific productivity shocks appear to play a key role.

Keywords: Current account, productivity, investment, budget deficit

JEL Classification: E62, F32, F41

Suggested Citation

Bussiere, Matthieu and Fratzscher, Marcel and Müller, Gernot J., Productivity Shocks, Budget Deficits and the Current Account (August 2005). ECB Working Paper No. 509, Available at SSRN: https://ssrn.com/abstract=750789

Matthieu Bussiere (Contact Author)

Banque de France ( email )

Paris
France

Marcel Fratzscher

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

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