Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-Term Data?
Abstract
We undertake tests of whether long term data from the U.S. and U.K. are consistent with the intertemporal government budget constraint and the intertemporal external borrowing constraint being satisfied in expected value terms, both individually and simultaneously. An historical perspective is appropriate for focusing on whether the present value constraints (PVCs) continue to hold in the face of unusual events, such as the outbreak of wars, that cause a structural break in the short-run dynamic behavior of the variables. This provides a very strong test of whether intertemporal budget constraints are satisfied. Our main results are: (i) the PVCs hold over the whole sample period; and (ii) the data are also consistent with the hypothesis that the PVCs continue to hold following events which cause a structural break in the short-run dynamics.
Abstract We undertake tests of whether long term data from the U.S. and U.K. are consistent with the intertemporal government budget constraint and the intertemporal external borrowing constraint being satisfied in expected value terms, both individually and simultaneously. An historical perspective is appropriate for focusing on whether the present value constraints (PVCs) continue to hold in the face ofunusual events, such as the outbreak of wars, that cause a structural break in the short-run dynamic behavior ofthe variables. This provides a very strong test of whether intertemporal budget constraints are satisfied. Our main results are: (i) the PVCs hold over the whole sample period; and (ii) the data are also consistent with the hypothesis that the PVCs continue to hold following events which cause a structural break in the short-run dynamics.
Cite this document
Shaghil Ahmed and John H. Rogers (1994). Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-Term Data? (IFDP 1995-494). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1995-494
@techreport{wtfs_ifdp_1995_494,
author = {Shaghil Ahmed and John H. Rogers},
title = {Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-Term Data?},
type = {International Finance Discussion Papers},
number = {1995-494},
institution = {Board of Governors of the Federal Reserve System},
year = {1994},
url = {https://whenthefedspeaks.com/doc/ifdp_1995-494},
abstract = {We undertake tests of whether long term data from the U.S. and U.K. are consistent with the intertemporal government budget constraint and the intertemporal external borrowing constraint being satisfied in expected value terms, both individually and simultaneously. An historical perspective is appropriate for focusing on whether the present value constraints (PVCs) continue to hold in the face of unusual events, such as the outbreak of wars, that cause a structural break in the short-run dynamic behavior of the variables. This provides a very strong test of whether intertemporal budget constraints are satisfied. Our main results are: (i) the PVCs hold over the whole sample period; and (ii) the data are also consistent with the hypothesis that the PVCs continue to hold following events which cause a structural break in the short-run dynamics.},
}