Mehdi S. Monadjemi

Fiscal policy and current account performance: International evidence on the twin deficits☆

Abstract Divergent predictions about the twin deficits relationship, which links the stance of fiscal policy to the current account balance, continue to emanate from variously specified theoretical models of the open economy. This paper utilizes the vector autoregressive (VAR) technique to examine the international evidence from eight countries on quarterly data over the recent period of floating exchange rates from 1972:i–1987:iv. The evidence is consistent with a temporary twin deficits relationship that is not invariant to the governments financing decision and does not persist over time.

Fiscal policy and private investment expenditure: a study of Australia and the United States

The effect of government spending on private sectors investment and profitability is examined within the context of an open economy macro model. The empirical results of the study indicate that the private investment expenditure in Australia and the United States is ‘crowed out’ by government investment and government consumption, respectively. These results are in conflict with the hypothesis of fiscal neutrality. In addition, the empirical results of corporate profitability provide no support for the complementary relationship between public and private investment expenditure.

International interest rates linkages: Evidence from OECD countries

The purpose of thia paper is to examine the link between real interest rates in a group of OECD countries. The paper will also attempt to investigate the extent to which real interest reates are influenced by the movements of real rates in larger economies.

The interest rate neutrality of fiscal deficits: testing for Ricardian equivalence and capital inflow

Abstract This paper examines the extent to which the Ricardian equivalence theorem as restated by Barro (1974) and the capital inflow hypothesis of Dwyer (1985) provide valid explanations of the observed interest rate neutrality of fiscal policy in open economies. A theoretical open-economy macromodel is specified and subsequently tested on a multi-country dataset which spans the recent period of floating exchange rates. On balance, the empirical results favour the capital inflow hypothesis which emphasizes the importance of international financial integration in facilitating the financing of public deficits by the savings of agents who reside across political frontiers.