The Financial Crisis has hit particularly hard countries like Ireland or Spain. Procyclical fiscal policy has contributed to a boom-bust cycle that undermined fiscal positions and deepened current account deficits during the boom. We set up an RBC model of a small open economy, following Mendoza...

A consensus has not yet emerged about the relationship between the budget deficit, external deficit and national saving. In general, the mechanisms through which a budget deficit could cause a current account deficit are not highlighted in the works about this theme. Basing on the Post Keynesian...