Article

 

A REVISIT ON THE ROLE OF MACRO IMBALANCES IN THE US RECESSION OF 2007-2009: A FREQUENCY DOMAIN APPROACH (p.13-29)

by

Mihai Mutascu, ESCE International Business School Paris

Aviral Kumar Tiwari, Montpellier Business School

Keywords : Macro imbalance, Recession, Causality, Frequency domain, USA

JEL classification : H62, P33, E43, O16, G01, C53

Abstract

This paper revisits Paul’s (2010) and Tiwari and Pandey’s (2013) results and finds new evidence regarding the role of macro imbalances in the US recession of 2007-2009, starting from mentioned authors’ works. Using Paul’s (2010) dataset, our results are obtained based on Breitung and Candelon’s (2006) approach of Granger-causality in the frequency domain. The main findings reveal that growth in the fiscal deficit and the trade deficit influences each other, thus increasing the twin deficits. This pair generates a low interest rate and private saving. At the same time, the low level of interest rate reduces the level of private saving, having great contribution to the housing bubble. Neither fiscal deficit nor trade deficit has a direct impact on GDP.