M.A. van Tuijl

The twin-debt problem in an interdependent world

The reduced supply of and an increasing demand for world savings suggest continuously high interest rates in the years to come. The IMF, OECD and BIS recently expressed their concern about the sustainability of the external deficits in view of the persistent large US external deficit, the substantial German external deficit caused by the unification, the increased demand for savings to finance the restructuring of the Eastern European economies and the environmental policies. This question seems relevant, especially to the US. For, total claims to the limited US savings as represented by the combined financing needs of private domestic investment and the federal budget deficit, points to an awkward situation. The persistence of this’ savings gap’ (Corrigan, 1990), accompanied with a growing budget deficit creates a serious twin-deficit-twin-debt problem (Kremers, 1990).

Goods markets integration and fiscal policy: A two-country two-sector analysis

Abstract A two-country two-sector model with a portfolio choice between money and highly substitutable domestic and foreign bonds, floating exchange rates and perfect foresight is presented. Account is taken of capital accumulation, government debt and current account dynamics. Numerical methods, including extensive sensitivity analysis, are used to trace the consequences of goods market integration for the effects and spill over effects of fiscal policy. Another purpose is to establish the relevance of disaggregation for the outcomes of fiscal policy.