Research / BFI Working PaperJun 28, 2022

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

Rishabh Aggarwal, Adrien Auclert, Matthew Rognlie, Ludwig Straub

We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneous-agent 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.

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BFI Working Paper Aug 25, 2021

Demographics, Wealth, and Global Imbalances in the Twenty-First Century

Adrien Auclert, Hannes Malmberg, Frédéric Martenet, Matthew Rognlie
Topics:  Economic Mobility & Poverty