Sustaining Domestic Budget Deficits in Open Economies

Sustaining Domestic Budget Deficits in Open Economies

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In recent times the US economy has been characterised by burgeoning budget and current account deficits and increasing amounts of foreign capital inflows. For the UK too, the budget deficit remains a central weakness in the economy. In the light of these problems this book presents a consistent economic framework for analysing the effects and implications of large bond-financed deficits. The author uses an open-economy rational expectations model to explore to what extent governments can simply 'roll-over' debt by issuing more bonds without any help from the monetary authority. He examines too, the impact of foreign capital on the sustainability of domestic budget deficits the behaviour of exchange rates and the possible effects of fiscal and monetary policies. This model is placed in the context of the major economic orthodoxies and their competing stances and also of American monetary history from Truman to Reagan and the crash of 1987. Focusing attention on a major problem in macroeconomics and for the chancellors of a number of economies, the book makes an important contribution to the understanding of this complex area.Since the four European countries in question were not on the gold standard, they had no such budgetary discipline imposed on them, and their currencies were unbacked or a#39;fiata#39;. This led the ... Relevant plots pertaining to the German hyperinflation are in figures 15.1a€“15.4, and an examination of the plots of the price level, exchange rate, government debt outstanding, and domestic money creation, reveal a close similarity to the behaviour of these variables for the economy in case II.

Title:Sustaining Domestic Budget Deficits in Open Economies
Author:Farrokh Langdana
Publisher:Routledge - 2002-09-11


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