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Multivariate-based causality tests of twin deficits in the US

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  • Abdulnasser Hatemi-J
  • Ghazi Shukur

Abstract

This paper provides an alternative methodology for testing the causality direction between twin deficits in the US. Rao's multivariate F-test combined with the bootstrap simulation technique has appealing properties, especially when the data-generating process is characterized by unit roots. In addition the results show that the effect of structural breaks are of paramount importance when the causality tests are conducted. In much contemporary applied econometrics there is all-too-little attention given to the possibility of changes in the economic process.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/02664760220136159
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Applied Statistics.

Volume (Year): 29 (2002)
Issue (Month): 6 ()
Pages: 817-824

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Handle: RePEc:taf:japsta:v:29:y:2002:i:6:p:817-824

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References

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  1. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  2. Mantalos Panagiotis, 2000. "A Graphical Investigation of the Size and Power of the Granger-Causality Tests in Integrated-Cointegrated VAR Systems," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 4(1), pages 1-18, April.
  3. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  4. Michel Normandin, 1996. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Macroeconomics 9607001, EconWPA.
  5. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  6. Ghazi Shukur & Panagiotis Mantalos, 2000. "A simple investigation of the Granger-causality test in integrated-cointegrated VAR systems," Journal of Applied Statistics, Taylor & Francis Journals, vol. 27(8), pages 1021-1031.
  7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  8. M. Faizul Islam, 1998. "Brazil's twin deficits: An empirical examination," Atlantic Economic Journal, International Atlantic Economic Society, vol. 26(2), pages 121-128, June.
  9. Kenneth Kasa, 1994. "Finite horizons and the twin deficits," Economic Review, Federal Reserve Bank of San Francisco, pages 19-28.
  10. Kearney, Colm & Monadjemi, Mehdi, 1990. "Fiscal policy and current account performance: International evidence on the twin deficits," Journal of Macroeconomics, Elsevier, vol. 12(2), pages 197-219.
  11. Abdulnasser Hatemi-J & Ghazi Shukur, 1999. "The causal nexus of government spending and revenue in Finland: a bootstrap approach," Applied Economics Letters, Taylor & Francis Journals, vol. 6(10), pages 641-644.
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Citations

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Cited by:
  1. 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.
  2. Jarko Fidrmuc, 2003. "The Feldstein–Horioka Puzzle and Twin Deficits in Selected Countries," Economic Change and Restructuring, Springer, vol. 36(2), pages 135-152, June.
  3. Alberto Bagnai, 2006. "Structural breaks and the twin deficits hypothesis," International Economics and Economic Policy, Springer, vol. 3(2), pages 137-155, November.
  4. 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.
  5. Xie, Zixiong & Chen, Shyh-Wei, 2014. "Untangling the causal relationship between government budget and current account deficits in OECD countries: Evidence from bootstrap panel Granger causality," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 95-104.
  6. Ilir MITEZA, 2012. "Fiscal Deficits, Current Deficits and Investment: A Panel Causality Framework of 20 OECD countries," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(1).
  7. 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.
  8. Evan Lau & Tuck Cheong Tang, 2009. "Twin deficits in Cambodia: An Empirical Study," Economics Bulletin, AccessEcon, vol. 29(4), pages 2783-2794.
  9. Herrmann, Sabine & Jochem, Axel, 2005. "Determinants of current account developments in the central and east European EU member states - consequences for the enlargement of the euro area," Discussion Paper Series 1: Economic Studies 2005,32, Deutsche Bundesbank, Research Centre.
  10. Puah, Chin-Hong & Lau, Evan & Tan, Kim Lee, 2006. "Budget-current account deficits nexus in Malaysia," MPRA Paper 37677, University Library of Munich, Germany.
  11. Evan Lau & Tuck Cheong Tang, 2009. "Twin deficits in Cambodia: Are there Reasons for Concern? An Empirical Study," Monash Economics Working Papers 11-09, Monash University, Department of Economics.
  12. Tang, Chor Foon, 2010. "Revisiting the health-income nexus in Malaysia: ARDL cointegration and Rao's F-test for causality," MPRA Paper 27287, University Library of Munich, Germany.
  13. Kalou, Sofia & Paleologou, Suzanna-Maria, 2012. "The twin deficits hypothesis: Revisiting an EMU country," Journal of Policy Modeling, Elsevier, vol. 34(2), pages 230-241.
  14. Trachanas, Emmanouil & Katrakilidis, Constantinos, 2013. "The dynamic linkages of fiscal and current account deficits: New evidence from five highly indebted European countries accounting for regime shifts and asymmetries," Economic Modelling, Elsevier, vol. 31(C), pages 502-510.

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