CAN GOVERNMENT PURCHASES EXPLAIN THE RECENT UNITED-STATES NET EXPORT DEFICITS

This paper investigates the role of U.S. government purchases in expla ining recent U.S. net export behavior. I develop a two-country neoclas sical model that emphasizes linkages from government purchases to cons umption. I compare the model's implications for the movements and co-m ovements of net exports against their data counterparts. A parameteriz ation in which government purchases and private consumption are comple ments and in which expectations of future government purchases are rev ised downward can account for much of the time path and co-movements o f net exports. I conclude that U.S. government purchases play some rol e in explaining recent U.S. net export behavior.