The dynamic linkages of fiscal and current account deficits: New evidence from five highly indebted European countries accounting for regime shifts and asymmetries
AbstractThis article provides new empirical evidence on the long-term relationship between the fiscal and current account imbalances, of five European economies under financial market pressure and insolvency; Portugal, Ireland, Italy, Greece and Spain. We attempt to re-evaluate the dynamic linkages between the twin-deficits allowing for the presence of structural breaks and asymmetries. The evidence is in favor of the “twin deficits hypothesis”. More insight is further provided through the magnitude and significance of the asymmetric linkages between the twin deficits in the long-run time horizon. Our findings indicate that fiscal deficit decreases have a greater impact on the current account deficit rather than the opposite.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 31 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30411
Fiscal deficit; Current account deficit; Twin deficits; Structural breaks; Asymmetric cointegration;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
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