The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account
Over the past decade the United States has experienced widening current account deficits and a steady deterioration of its net foreign asset position. During the second half of the 1990s, this deterioration was fueled by foreign investment in a booming U.S. stock market. During the first half of the 2000s, this deterioration has been fuelled by foreign purchases of rapidly increasing U.S. government debt. A somewhat surprising aspect of the current debate is that stock market movements and fiscal policy choices have been largely treated as unrelated events. Stock market movements are usually interpreted as reflecting exogenous changes in perceived or real productivity, while budget deficits are usually understood as a mainly political decision. The authors challenge this view here and develop two alternative interpretations. Both are based on the notion that a bubble (the "dot-com" bubble) has been driving the stock market, but differ in their assumptions about the interactions between this bubble and fiscal policy (the "Bush" deficits). The "benevolent" view holds that a change in investor sentiment led to the collapse of the dot-com bubble and the Bush deficits were a welfare-improving policy response to this event. The "cynical" view holds instead that the Bush deficits led to the collapse of the dot-com bubble as the new administration tried to appropriate rents from foreign investors. The authors discuss the implications of each of these views for the future evolution of the U.S. economy and, in particular, its net foreign asset position.
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dig-okr-1098686332024-08-08T17:21:33Z The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account Ventura, Jaume Kraay, Aart BANKING CRISES BONDS BORROWING BUDGET DEFICITS CAPITAL GAINS CAPITALIZATION COST OF CAPITAL CROWDING OUT DEBT DEFAULT RISK DIVIDENDS ELASTICITY ELASTICITY OF SUBSTITUTION EMERGING MARKETS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPECTED UTILITY EXPECTED VALUE EXPORTS FINANCIAL MARKETS FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTORS GNP GOVERNMENT BONDS GOVERNMENT DEBT GROWTH RATE INCOME INDIRECT CHANNELS INEFFICIENCY INFLATION INTEREST RATE INVESTMENT EXPENDITURES LOW INTEREST RATES PORTFOLIO PRODUCTIVITY PUBLIC DEBT REAL GDP REAL INTEREST RATE SAVINGS SHAREHOLDERS TREASURY TREASURY BILLS WEALTH WORLD EQUILIBRIUM MODEL Over the past decade the United States has experienced widening current account deficits and a steady deterioration of its net foreign asset position. During the second half of the 1990s, this deterioration was fueled by foreign investment in a booming U.S. stock market. During the first half of the 2000s, this deterioration has been fuelled by foreign purchases of rapidly increasing U.S. government debt. A somewhat surprising aspect of the current debate is that stock market movements and fiscal policy choices have been largely treated as unrelated events. Stock market movements are usually interpreted as reflecting exogenous changes in perceived or real productivity, while budget deficits are usually understood as a mainly political decision. The authors challenge this view here and develop two alternative interpretations. Both are based on the notion that a bubble (the "dot-com" bubble) has been driving the stock market, but differ in their assumptions about the interactions between this bubble and fiscal policy (the "Bush" deficits). The "benevolent" view holds that a change in investor sentiment led to the collapse of the dot-com bubble and the Bush deficits were a welfare-improving policy response to this event. The "cynical" view holds instead that the Bush deficits led to the collapse of the dot-com bubble as the new administration tried to appropriate rents from foreign investors. The authors discuss the implications of each of these views for the future evolution of the U.S. economy and, in particular, its net foreign asset position. 2012-06-21T14:57:23Z 2012-06-21T14:57:23Z 2005-08 http://documents.worldbank.org/curated/en/2005/08/6133258/dot-com-bubble-bush-deficits-current-account-dot-com-bubble-bush-deficits-current-account https://hdl.handle.net/10986/8633 English Policy Research Working Paper; No. 3672 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank application/pdf text/plain World Bank, Washington, DC |
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Banco Mundial |
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Estados Unidos |
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US |
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Bibliográfico |
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En linea |
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dig-okr |
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biblioteca |
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America del Norte |
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Biblioteca del Banco Mundial |
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English |
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BANKING CRISES BONDS BORROWING BUDGET DEFICITS CAPITAL GAINS CAPITALIZATION COST OF CAPITAL CROWDING OUT DEBT DEFAULT RISK DIVIDENDS ELASTICITY ELASTICITY OF SUBSTITUTION EMERGING MARKETS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPECTED UTILITY EXPECTED VALUE EXPORTS FINANCIAL MARKETS FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTORS GNP GOVERNMENT BONDS GOVERNMENT DEBT GROWTH RATE INCOME INDIRECT CHANNELS INEFFICIENCY INFLATION INTEREST RATE INVESTMENT EXPENDITURES LOW INTEREST RATES PORTFOLIO PRODUCTIVITY PUBLIC DEBT REAL GDP REAL INTEREST RATE SAVINGS SHAREHOLDERS TREASURY TREASURY BILLS WEALTH WORLD EQUILIBRIUM MODEL BANKING CRISES BONDS BORROWING BUDGET DEFICITS CAPITAL GAINS CAPITALIZATION COST OF CAPITAL CROWDING OUT DEBT DEFAULT RISK DIVIDENDS ELASTICITY ELASTICITY OF SUBSTITUTION EMERGING MARKETS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPECTED UTILITY EXPECTED VALUE EXPORTS FINANCIAL MARKETS FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTORS GNP GOVERNMENT BONDS GOVERNMENT DEBT GROWTH RATE INCOME INDIRECT CHANNELS INEFFICIENCY INFLATION INTEREST RATE INVESTMENT EXPENDITURES LOW INTEREST RATES PORTFOLIO PRODUCTIVITY PUBLIC DEBT REAL GDP REAL INTEREST RATE SAVINGS SHAREHOLDERS TREASURY TREASURY BILLS WEALTH WORLD EQUILIBRIUM MODEL |
| spellingShingle |
BANKING CRISES BONDS BORROWING BUDGET DEFICITS CAPITAL GAINS CAPITALIZATION COST OF CAPITAL CROWDING OUT DEBT DEFAULT RISK DIVIDENDS ELASTICITY ELASTICITY OF SUBSTITUTION EMERGING MARKETS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPECTED UTILITY EXPECTED VALUE EXPORTS FINANCIAL MARKETS FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTORS GNP GOVERNMENT BONDS GOVERNMENT DEBT GROWTH RATE INCOME INDIRECT CHANNELS INEFFICIENCY INFLATION INTEREST RATE INVESTMENT EXPENDITURES LOW INTEREST RATES PORTFOLIO PRODUCTIVITY PUBLIC DEBT REAL GDP REAL INTEREST RATE SAVINGS SHAREHOLDERS TREASURY TREASURY BILLS WEALTH WORLD EQUILIBRIUM MODEL BANKING CRISES BONDS BORROWING BUDGET DEFICITS CAPITAL GAINS CAPITALIZATION COST OF CAPITAL CROWDING OUT DEBT DEFAULT RISK DIVIDENDS ELASTICITY ELASTICITY OF SUBSTITUTION EMERGING MARKETS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPECTED UTILITY EXPECTED VALUE EXPORTS FINANCIAL MARKETS FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTORS GNP GOVERNMENT BONDS GOVERNMENT DEBT GROWTH RATE INCOME INDIRECT CHANNELS INEFFICIENCY INFLATION INTEREST RATE INVESTMENT EXPENDITURES LOW INTEREST RATES PORTFOLIO PRODUCTIVITY PUBLIC DEBT REAL GDP REAL INTEREST RATE SAVINGS SHAREHOLDERS TREASURY TREASURY BILLS WEALTH WORLD EQUILIBRIUM MODEL Ventura, Jaume Kraay, Aart The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account |
| description |
Over the past decade the United States has experienced widening current account deficits and a steady deterioration of its net foreign asset position. During the second half of the 1990s, this deterioration was fueled by foreign investment in a booming U.S. stock market. During the first half of the 2000s, this deterioration has been fuelled by foreign purchases of rapidly increasing U.S. government debt. A somewhat surprising aspect of the current debate is that stock market movements and fiscal policy choices have been largely treated as unrelated events. Stock market movements are usually interpreted as reflecting exogenous changes in perceived or real productivity, while budget deficits are usually understood as a mainly political decision. The authors challenge this view here and develop two alternative interpretations. Both are based on the notion that a bubble (the "dot-com" bubble) has been driving the stock market, but differ in their assumptions about the interactions between this bubble and fiscal policy (the "Bush" deficits). The "benevolent" view holds that a change in investor sentiment led to the collapse of the dot-com bubble and the Bush deficits were a welfare-improving policy response to this event. The "cynical" view holds instead that the Bush deficits led to the collapse of the dot-com bubble as the new administration tried to appropriate rents from foreign investors. The authors discuss the implications of each of these views for the future evolution of the U.S. economy and, in particular, its net foreign asset position. |
| topic_facet |
BANKING CRISES BONDS BORROWING BUDGET DEFICITS CAPITAL GAINS CAPITALIZATION COST OF CAPITAL CROWDING OUT DEBT DEFAULT RISK DIVIDENDS ELASTICITY ELASTICITY OF SUBSTITUTION EMERGING MARKETS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPECTED RETURN EXPECTED UTILITY EXPECTED VALUE EXPORTS FINANCIAL MARKETS FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FOREIGN ASSETS FOREIGN INVESTMENT FOREIGN INVESTORS GNP GOVERNMENT BONDS GOVERNMENT DEBT GROWTH RATE INCOME INDIRECT CHANNELS INEFFICIENCY INFLATION INTEREST RATE INVESTMENT EXPENDITURES LOW INTEREST RATES PORTFOLIO PRODUCTIVITY PUBLIC DEBT REAL GDP REAL INTEREST RATE SAVINGS SHAREHOLDERS TREASURY TREASURY BILLS WEALTH WORLD EQUILIBRIUM MODEL |
| author |
Ventura, Jaume Kraay, Aart |
| author_facet |
Ventura, Jaume Kraay, Aart |
| author_sort |
Ventura, Jaume |
| title |
The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account |
| title_short |
The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account |
| title_full |
The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account |
| title_fullStr |
The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account |
| title_full_unstemmed |
The Dot-Com Bubble, the Bush Deficits, and the U.S. Current Account |
| title_sort |
dot-com bubble, the bush deficits, and the u.s. current account |
| publisher |
World Bank, Washington, DC |
| publishDate |
2005-08 |
| url |
http://documents.worldbank.org/curated/en/2005/08/6133258/dot-com-bubble-bush-deficits-current-account-dot-com-bubble-bush-deficits-current-account https://hdl.handle.net/10986/8633 |
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