Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies
By Rishabh Aggarwal, Adrien Auclert, Matthew Rognlie, Ludwig Straub
NBER Macroeconomics Annual | 2023
DOI
doi.org/10.1086/723586
Citation
Aggarwal, Rishabh., Auclert, Adrien., Rognlie, Matthew., Straub, Ludwig. Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies NBER Macroeconomics Annual doi.org/10.1086/723586.
Copyright
NBER Macroeconomics Annual, 2023
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Abstract
We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneous-agent model of the world economy. In the long run, increases in government debt anywhere raise the world interest rate and increase private wealth everywhere. In the short run, a country with a larger-than-average fiscal deficit experiences both a large increase in private savings (“excess savings”) and a small but persistent current account deficit (a slow-motion “twin deficit”). These patterns are consistent with the evolution of the world’s balance of payments since the beginning of the Covid pandemic.

Rishabh Aggarwal is an Assistant Professor of Accounting at the Indian School of Business (ISB). His research interests lie broadly in examining the impact of information frictions on financial markets and the macroeconomy.

His current research falls into two domains. In the first, he examines how corporations' voluntary disclosure policies, such as earnings guidance, affect firm value and investment efficiency at both the micro and the macro levels. In the second, he investigates the impact of firm-level heterogeneity (such as productivity and disclosure incentives) on the transmission of monetary and fiscal policy shocks. Specifically, his work shows that managers' disclosure incentives affect the information-friction channel of monetary policy transmission, thereby influencing firms' sensitivity to monetary policies.

Before joining ISB, Professor Aggarwal earned his PhD in Business Administration from the Stanford Graduate School of Business, a Master's in Economics from the University of Texas at Austin, and a Bachelor of Technology in Mechanical Engineering from the Indian Institute of Technology Delhi. He also worked as a Research Associate at the Kellogg School of Management, Northwestern University, and as a Research Engineer at Honda R&D Co. Ltd., Japan.

Rishabh Aggarwal
Rishabh Aggarwal