[Australian Economic Stimulus Package Policy Implications]

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Acknowledgement

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ABSTRACT

The warmed argument over the sustainability of Australia's high present account deficit that stormed over most of the repaired and bobbing exchange time span was due to the malfunction of policymakers to move from the Keynesian Mundell Fleming (KMF) paradigm which has been rendered obsolete by the bobbing of the Australian in 1983q4 to the Intertemporal Optimization (ITO) paradigm which was more befitting under the bobbing exchange rate as supported by several Australian economists in the Pitchford thesis. The Pitchford thesis argued that after the bobbing of the exchange rate the present account deficit was the residual conclusion of reasonable optimizing conclusions of personal agencies and if there was fiscal balance then the policy of aiming at the decrease of the present account deficit founded on the KMF paradigm was misconceived. Empirical checks founded on the submission of the snare present worth benchmark utilising vector autoregressions, unit origin and cointegration econometrics discloses that Australia's present account deficit disclosed that the present account deficits were unsustainable throughout the repaired exchange time span and over the entire study time span 1960q3-2007q4, but not throughout the bobbing exchange rate time span post-1983q4. Therefore the empirical outcomes provided integrity to the Pitchford thesis but Australian policymakers proceeded to goal the decrease of the present account deficit because their malfunction to make the paradigm move from KMF to ITO to be reliable with the regime move from a repaired to a bobbing exchange rate. However, in 2004 after more than two decades feuding Australian policymakers acknowledged the Pitchford thesis and leave behind the policy of aiming at the decrease of the present account deficit. But the global financial crisis and global recession has consigned a death assault to the Pitchford thesis by undermining the key assumptions of fiscal balance and rationality that underpins it. The fiscal stimulus package that has been applied to battle the drop in aggregate demand and refurbish buyer self-assurance due to the global recession has produced in huge fiscal imbalance and the borrowing crunch has undermined reasonable demeanour and buyer confidence. Therefore, the Pitchford thesis no longer directions the policy roost after the global financial crisis. In this study we draw on the inconsistent policy perspectives on the unsustainability of high US present account deficits that tender a malign prognosis founded on Salvatore's twin deficit hypothesis and a benign prognosis founded on Bernanke's global savings glut hypothesis to recognise some key policy trials that battle Australian policymakers to navigate the Australian finances out of the global financial crisis and recession ...