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The Austrian current account deficit: Driven by twin deficits or by intertemporal expenditure allocation?

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Author Info

  • Sylvia Kaufmann

    (University of Vienna, Department of Economics, Hohenstaufengasse 9, A-1010 Vienna, and Oesterreichische Nationalbank, Economic Analysis Division, Otto Wagner Platz 3, 1090 Vienna)

  • Georg Winckler

    (University of Vienna, Department of Economics, Hohenstaufengasse 9, A-1010 Vienna)

  • Johann Scharler

    (University of California - Davis, Department of Economics, One Shields Ave., Davis, CA 95616-8578)

Abstract

The evidence presented in the paper rejects the twin deficit hypothesis for the Austrian current account balance during the last two decades. The results are based on an estimate of a vector error correction model including quarterly data for the current account balance and potentially relevant variables driving its dynamics. We compute the variance decomposition of the current account's forecast error and its generalized impulse responses to shocks in the innovations of the system. The results in favor of intertemporal expenditure reallocation cannot be reproduced within a second analysis including the current account and a measure of net output, however. The estimated implicit current account balance, interpreted as the discounted expected change in future net output, does not follow the actual behaviour of the current account.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 27 (2002)
Issue (Month): 3 ()
Pages: 529-542

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Handle: RePEc:spr:empeco:v:27:y:2002:i:3:p:529-542

Note: received: June 1999/Final version received: March 2001
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Related research

Keywords: current account · Mundell-Fleming model · Ricardian equivalence · vector error correction and vector autoregression · variance decomposition · impulse response analysis;

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Cited by:
  1. Evan Lau & Tuck Cheong Tang, 2009. "Twin deficits in Cambodia: Are there Reasons for Concern? An Empirical Study," Development Research Unit Working Paper Series 11-09, Monash University, Department of Economics.
  2. Nikolina E. Kosteletou, 2013. "Financial Integration, Euro and the Twin Deficits of Southern Eurozone Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(2), pages 161-178, April.
  3. Misztal, Piotr, 2012. "The link between government budget and current account in the Baltic countries," MPRA Paper 40784, University Library of Munich, Germany.
  4. Narayan, Seema, 2013. "A structural VAR model of the Fiji Islands," Economic Modelling, Elsevier, vol. 31(C), pages 238-244.
  5. Evan Lau & Tuck Cheong Tang, 2009. "Twin deficits in Cambodia: An Empirical Study," Economics Bulletin, AccessEcon, vol. 29(4), pages 2783-2794.
  6. Puah, Chin-Hong & Lau, Evan & Tan, Kim Lee, 2006. "Budget-current account deficits nexus in Malaysia," MPRA Paper 37677, University Library of Munich, Germany.
  7. Asrafuzzaman & Amit Roy & Sanat Das Gupta, 2013. "An Empirical Investigation of Budget and Trade Deficits: The Case of Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 570-579.
  8. Lau, E. & Baharumshah, A. Z., 2006. "Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
  9. E Lau & S Abu Mansor & C-H Puah, 2010. "Revival of the Twin Deficits in Asian Crisis-affected Countries," Economic Issues Journal Articles, Economic Issues, vol. 15(1), pages 29-54, March.
  10. Ahmad Zubaidi Baharumshah & Evan Lau, 2005. "Budget and Current Account Deficits in SEACEN Countries: Evidence Based on the Panel Approach," International Finance 0504002, EconWPA.
  11. Ahmad Zubaidi Baharumshah & Evan Lau & Ahmed M. Khalid, 2005. "Testing Twin Deficits Hypothesis: Using VARs and Variance Decomposition," International Finance 0504001, EconWPA.
  12. 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.

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