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The Feldstein–Horioka Puzzle and Twin Deficits in Selected Countries

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  • Jarko Fidrmuc

Abstract

Hysteresis (unit root) of the current account, fiscal balance, and investment shares is found for the majority of industrial countries as well as selected emerging and transition economies between 1970 and 2001. Twin deficits are defined as a positive long-run relationship between the current account and the fiscal balance. The paper provides evidence for twin deficits in several countries, although we can see differences between the 1980s and the 1990s. Investment in some EU countries is financed to a relatively high degree at the international financial markets implying that the Feldstein-Horioka puzzle is less important in the EU. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/B:ECOP.0000012256.88112.c2
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Bibliographic Info

Article provided by Springer in its journal Economics of Planning.

Volume (Year): 36 (2003)
Issue (Month): 2 (June)
Pages: 135-152

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Handle: RePEc:kap:ecopln:v:36:y:2003:i:2:p:135-152

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Web page: http://www.springerlink.com/link.asp?id=113294

Related research

Keywords: cointegration; current account deficit; Feldstein-Horioka puzzle; fiscal policy; hysteresis;

References

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Citations

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Cited by:
  1. Holmes, Mark J., 2011. "Threshold cointegration and the short-run dynamics of twin deficit behaviour," Research in Economics, Elsevier, vol. 65(3), pages 271-277, September.
  2. Aristovnik, Aleksander, 2006. "How sustainable are current account deficits in selected transition economies?," MPRA Paper 485, University Library of Munich, Germany.
  3. Aleksander Aristovnik, 2006. "Current Account Sustainability In Selected Transition Countries," William Davidson Institute Working Papers Series wp844, William Davidson Institute at the University of Michigan.
  4. Piotr Misztal, 2011. "The Feldstein-Horioka Hypothesis in Countries with Varied Levels of Economic Development," Contemporary Economics, University of Finance and Management in Warsaw, vol. 5(2), June.
  5. Ahmad Zubaidi Baharumshah & Evan Lau, 2009. "Structural breaks and the twin deficits hypothesis: Evidence from East Asian countries," Economics Bulletin, AccessEcon, vol. 29(4), pages 2517-2524.
  6. Chowdhury, Khorshed & Saleh, Ali Salman, 2007. "Testing the Keynesian Proposition of Twin Deficits in the Presence of Trade Liberalisation: Evidence from Sri Lanka after War: the case of a bridge too far?," Economics Working Papers wp07-09, School of Economics, University of Wollongong, NSW, Australia.
  7. Marinheiro, Carlos Fonseca, 2008. "Ricardian equivalence, twin deficits, and the Feldstein-Horioka puzzle in Egypt," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 1041-1056.
  8. Slacík, Tomáš & Cuaresma, Jesús Crespo, 2008. "Determinants of Currency Crises: A Conflict of Generations?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1.
  9. Aristovnik, Aleksander & Djurić, Sandra, 2010. "Twin deficits and the Feldstein-Horioka puzzle: a comparison of the EU member states and candidate countries," MPRA Paper 24149, University Library of Munich, Germany.
  10. Hubert Gabrisch, 2012. "On the Twin Deficits Hypothesis and the Import Propensity in Transition Countries," IWH Discussion Papers 20, Halle Institute for Economic Research.
  11. Alberto Bagnai, 2010. "Twin deficits in CEEC economies: evidence from panel unit root tests," Economics Bulletin, AccessEcon, vol. 30(2), pages 1071-1081.

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