R.J. de Groof

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.

Theo van de Klundert : A frontier economist

SummaryTwenty-five years ago, Dr. Theo van de Klundert was appointed as Professor of Economics at Tillburg University. On the occassion of this jubilee the authors review Van de Klunderts contribution to the study of economic science in the The Netherlands. The article focuses on four topics: (1) growth and income distribution, (2) capital theory, resource economics and trade, (3) controversies between Keynesians and (4) open economy macroeconomics. A short remark is made about his teaching. Van de Klundert is praised for the quality and the comprehension of his scientific work.

Onzekerheid en Investeringsbeslissingen

SummaryIn the article an attempt is made to throw some light on the role of uncertainty in making investment decisions. At first a critical analysis is given of the present value method and some other conventional rules of thumb. As the discounting process needs a unique income stream, which is not available, the present value method must be rejected. The expected value of the possible income streams cannot be regarded as an adequate solution for this problem. Moreover it is quite impossible to choosethe appropriate discount rate: in case uncertainty is involved, an objective discount rate must be considered as non-existing.With respect to the rules of thumb such as the maximin criterion of gain, it is also to be concluded, that subjectivity plays a key role. The use of a cardinal utility function in determining investment volume demonstrates once more, how important the subjective element is in the theory of investment.Apart from examining several proposed decision criteria the author is considering, how the entrepreneur arrives at the probability judgment concerning the possible outcomes of the project. For this purpose the theory, developed by Fellner, in which subjective and objective (based on frequency observations) probability judgments are blended, is critically analysed.