Sectoral Balances: Empirical Evidence from Scandinavia
Working Paper Series Department of Business & Management Macroeconomic Methodology, Theory and Economic Policy (MaMTEP) No. 2, 2018 Sectoral Balances: Empirical evidence from Scandinavia By Mikael Randrup Byrialsen & Robert Ayerton Bailey Smith Sectoral Balances: Empirical evidence from Scandinavia∗ Mikael Randrup Byrialsen † Robert Ayerton Bailey Smith ‡ May 30, 2018 Abstract This paper explores the sectoral balances for Denmark, Norway and Sweden from a historical perspective. For each country, we examine the interactions amongst the three main sectors: the private sector, the public sector and the foreign sector. A common feature shared by these three economies is that they have persistently experienced surpluses on their current accounts for more than two decades. The three countries, however, diverge from each other when it comes to the composition of the excess domestic savings. In this paper we attempt to highlight these differ- ences based on empirical facts using historical data. Using our empirical facts as a motivation, we set up a simplified theoretical model, which allows us to explain the differences amongst these three countries. JEL codes: E01, E12, E21, E22, E62, F41. Keywords: Sector Balances, deficit, net lending, Scandinavia, Nordic. ∗This article benefited from comments from several colleagues and we would like to express our gratitude especially to Peter Skott, Finn Olesen, Mogens Ove Madsen, Lasse Bork and Hamid Raza. All the usual disclaimers apply, and all errors or omissions are entirely our own. †Permanent address: MaMTEP, Department of Business and Management, Aalborg University, Fibigerstræde 2, Aalborg East, email: randrup@business.aau.dk ‡Permanent address: MaMTEP, Department of Business and Management, Aalborg University, Fibigerstræde 2, Aalborg East, email: rs@business.aau.dk 1 1 Introduction The interaction between broader institutional sectors of the economy has captured the intrigue of economists and policy makers at least since François Quesnay published the two sector circular flow model in Tableau èconomique in 1758.
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