Intertemporal Currency Substitution and Government Deficits

2006 ◽  
Author(s):  
Saziye Gazioglu ◽  
W. David McCausland
Author(s):  
Thomas J. Sargent

This chapter examines the large net-of-interest deficits in the U.S. federal budget that have marked the administration of Ronald Reagan. It explains the fiscal and monetary actions observed during the Reagan administration as reflecting the optimal decisions of government policymakers. The discussion is based on an equation whose validity is granted by all competing theories of macroeconomics: the intertemporal government budget constraint. The chapter first considers the government budget balance and the optimal tax smoothing model of Robert Barro before analyzing monetary and fiscal policy during the Reagan years: a string of large annual net-of-interest government deficits accompanied by a monetary policy stance that has been tight, especially before February 1985, and even more so before August 1982. Indicators of tight monetary policy are high real interest rates on government debt and pretax yields that exceed the rate of economic growth.


Author(s):  
Lucy Barnes ◽  
Timothy Hicks

Abstract Public opinion on complex policy questions is shaped by the ways in which elites simplify the issues. Given the prevalence of metaphor and analogy as tools for cognitive problem solving, the deployment of analogies is often proposed as a tool for this kind of influence. For instance, a prominent explanation for the acceptance of austerity is that voters understand government deficits through an analogy to household borrowing. Indeed, there are theoretical reasons to think the household finance analogy represents a most likely case for the causal influence of analogical reasoning on policy preferences. This article examines this best-case scenario using original survey data from the United Kingdom. It reports observational and experimental analyses that find no evidence of causation running from the household analogy to preferences over the government budget. Rather, endorsement of the analogy is invoked ex post to justify support for fiscal consolidation.


2003 ◽  
Vol 10 (1) ◽  
pp. 59-62 ◽  
Author(s):  
Miriam Chau RodrÍGuez ◽  
Paul Turner

1989 ◽  
Vol 3 (2) ◽  
pp. 73-93 ◽  
Author(s):  
Robert Eisner

Whatever the real or imagined ills of the economy, the news media, most politicians and a fair proportion of the economics profession are quick to point to the culprit: “the budget deficit.” No matter that few appear to know or care precisely what deficit they are talking about or how it is measured. No matter that few bother to explain in terms of a relevant model just how government deficits may be expected to impact the economy. No matter that few offer any empirical data to sustain their judgments. I believe there are serious problems with our fiscal policy. These relate to fundamental national priorities and the provision of public goods, now and for the future. But the current size of the federal deficit is not “our number one economic problem,” if indeed it is a problem at all.


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