Budget deficits in the United States and six OECD nations are adjusted for inflation so as to correspond to changes in real net debt. Adjusted high-employment or cyclically-corrected deficits are then found to be positively related, and more clearly and sharply than unadjusted deficits, to...

A new model of the small open economy is constructed in which home producers operate in an international "customer market". Increased public expenditure on home output causes the home real interest rate to rise, boosting the velocity of money. It may also cause home firms to shave their...