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Speculative Growth: Hints from the U.S. Economy Research Paper


To understand the role of the correlation of surpluses and deficits in the economy of the United States, it is necessary to analyze the researchers’ findings in this field while paying much attention to the economists’ conclusions and possible economic predictions. In their article “Speculative Growth: Hints from the U.S. Economy”, Caballero, Farhi, and Hammour discuss the phenomenon of the extreme economic expansion in the United States in the 1990s while referring to the idea of speculative growth and analyzing the situation with references to the concept of fiscal surpluses (“AEA Journals”; “American Economic Association”; Caballero, Farhi, and Hammour 1159). Caballero, Farhi, and Hammour state that the development of this economic phenomenon is possible when the procyclical fiscal surpluses can be observed in the United States’ economy.

The researchers’ article provides the important background for the analysis of the role of fiscal surpluses for the idea of speculative growth. It is necessary to note that the concept of the speculative growth is rather debatable, and this notion is actively discussed by the economists today. Thus, one of the main strengths of Caballero, Farhi, and Hammour’s investigation is in the fact that the researchers propose the discussion of the episodes of speculative growth in the economy of the United States referring to the examples of the 1990s, analyzing the associated environments and context, and paying much attention to the role of fiscal surpluses in the process (Caballero, Farhi, and Hammour 1159).

The authors of the article discuss the generation of procyclical fiscal surpluses as the key element to cause the unexpected economic growth. According to the researchers, the positive effect of the fiscal surpluses on developing the processes known as the speculative equilibrium and speculative growth depends on observed increases in the country’s investment (Caballero, Farhi, and Hammour 1162). As a result, fiscal surpluses guarantee the funding for this process and promote the situations in the economy discussed as the speculative growth. Thus, the researchers use the effective example of the situation in the United States during the 1990s in order to discuss the question, and the overall conclusions supported with the credible evidence are appropriate to develop the further discussion of this controversial issue (Caballero, Farhi, and Hammour 1164).

While focusing on the role of the fiscal surpluses and additional capital flows, the authors of the article propose to discuss the episodes of the speculative growth in the economy of the United States from the most appropriate perspective. Much attention should be paid to the fact that Caballero, Farhi, and Hammour analyze all the sources of the fiscal surpluses in detail, and they also demonstrate the connections between the procyclical fiscal surpluses and the national debt to discuss the ideas of speculative equilibrium and speculative growth (Caballero, Farhi, and Hammour 1172).

Thus, Caballero, Farhi, and Hammour’s research developed to analyze the sources of the speculative growth in the United States’ economy is important to be referred to while emphasizing the role of fiscal surpluses in the development of the economic phenomenon because procyclical fiscal surpluses are considered as the critical factors to influence the discussed economic situation. In this case, the article by Caballero, Farhi, and Hammour is the significant source to focus on the detailed discussion of the problem of speculative equilibrium and speculative growth.

Analysis of Valerie Ramey’s “Can Government Purchases Stimulate the Economy?”

While the understanding of the correlation of surpluses and deficits is based on the proper discussion and examination of both concepts, it is necessary to focus on analyzing the role of the deficit-financed increases which affect the government purchases in the United States. In the article “Can Government Purchases Stimulate the Economy?”, Valerie Ramey discusses the government purchases as the stimulus for the country’s economic development and growth while concentrating on the idea of the multiplier related to the government spending. In this case, the concept of deficit plays the most important role because of affecting the economic progress with references to the deficit-financed increase. That is why, Ramey states that the discussion of the government purchases seems to be irrelevant without accentuating the deficit-financed increase (Ramey 673).

The researcher’s purpose is to estimate the multiplier associated with the government spending, and the observed result is between 0.8 and 1.5 (Ramey 673-675). Thus, Ramey’s article provides the important discussion of the issue and interesting findings related to the role of the government’s purchases and spending for the economic progress of the United States.

On the one hand, the scope of Ramey’s research can be discussed as rather limited because the investigator focuses only on stating the multiplier related to the government spending and government purchases in the United States during the 2000s. As a result, the reference to the idea of deficit depends on the limited purposes of the conducted research. On the other hand, Ramey’s research can be discussed as important because the investigator chooses to analyze the changes in the United States’ economy as a result of the economic crisis of 2008 with the focus on the ideas of government spending (Ramey 673-675). Thus, the researcher’s focus on the particular features of the fiscal policy and correlation of surpluses and deficits in the United States’ economy is significant for the further detailed examination of the controversial question.

The credibility of the author’s research depends on the choice of empirical evidence associated with the problem. Ramey chooses to estimate and discuss the multiplier typical for the economy of the United States while referring to the numbers and financial reports characteristic for the post-crisis period. In the article, Ramey refers to the examined multiplier, and she also discusses the aspects causing the balanced budget in order to receive the opportunity to conclude about the role of deficits in affecting the United States’ economy. The strength of Ramey’s work is in the fact that the researcher states clearly the connection between the increases in government spending, deficits, and changed taxes (Ramey 675). Furthermore, Ramey proposes the statistical and effective numerical analysis of the role of deficit-financed increases in relation to the observed government spending while providing the real-life examples associated with the economy of the United States in the 2000s.

That is why, Ramey’s approach to discussing the question of the deficit in relation to the government purchases and spending can be considered as effective to propose the sound conclusions about the correlation of surpluses and deficits in the economy of the United States while referring to the early part of the 2000s, the post-crisis period, and the current situation in the country. Ramey’s article is important to provide economists with more evidence to discuss the role of the deficit-financed increase regarding the observed government purchases as the methods of stimulation for the economy of the United States.

Works Cited

. 2012. Web.

. 2012. Web.

Caballero, Ricardo, Emmanuel Farhi, and Mohamad Hammour. “Speculative Growth: Hints from the U.S. Economy”. American Economic Review 96.4 (2006): 1159-1192. Print.

Ramey, Valerie. “Can Government Purchases Stimulate the Economy?” Journal of Economic Literature 49.3 (2011): 673-685. Print.

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IvyPanda. (2020, May 22). Speculative Growth: Hints from the U.S. Economy. Retrieved from https://ivypanda.com/essays/speculative-growth-hints-from-the-us-economy/

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"Speculative Growth: Hints from the U.S. Economy." IvyPanda, 22 May 2020, ivypanda.com/essays/speculative-growth-hints-from-the-us-economy/.

1. IvyPanda. "Speculative Growth: Hints from the U.S. Economy." May 22, 2020. https://ivypanda.com/essays/speculative-growth-hints-from-the-us-economy/.


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IvyPanda. "Speculative Growth: Hints from the U.S. Economy." May 22, 2020. https://ivypanda.com/essays/speculative-growth-hints-from-the-us-economy/.

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IvyPanda. 2020. "Speculative Growth: Hints from the U.S. Economy." May 22, 2020. https://ivypanda.com/essays/speculative-growth-hints-from-the-us-economy/.

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IvyPanda. (2020) 'Speculative Growth: Hints from the U.S. Economy'. 22 May.

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