The public-private savings mirror and causality relations among private savings, investment, and (twin) deficits: A full modeling approach

Relations between national public and private savings, domestic investment, and the current account are analyzed with the Global Econometric Model (National Institute, London). Simulation results obtained with this full modeling approach for the US, Japan, Germany, and the UK are compared with estimation results from the partial modeling approaches adopted in the literature. The results from the two approaches are rather different. The simulation results indicate that private savings largely offset public savings (and vice versa) in the short run. In contrast with findings in partial models, a smaller effect of aggregate savings on investment is found and government deficits tend to increase current account imbalances. (C) 1999 Society for Policy Modeling. Published by Elsevier Science Inc