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Financial Integration, Euro and the Twin Deficits of Southern Eurozone Countries

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  • Nikolina E. Kosteletou

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    (Department of Economics, National and Kapodistrian University of Athens, Greece)

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    Abstract

    The purpose of this study is the examination of the relationship between fiscal and Current Account balances for the countries of southern eurozone. The twin deficit hypothesis is tested within the context of a portfolio model involving variables from the financial sector. Empirical analysis is conducted with panel data, for the period 1991-2011. Evidence is provided to support the twin deficit hypothesis. Additionally, it is found that it is not only the fiscal policy of the southern eurozone coun-tries that affects their Current Account balances, but also the fiscal policy of the eurozone surplus countries of the north. Interdependence of euro-zone countries suggests that fiscal policy can be used for the elimination of external disequilibrium. Therefore, fiscal policy should be coordinated but not uniformly applied.

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    Bibliographic Info

    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 60 (2013)
    Issue (Month): 2 (April)
    Pages: 161-178

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    Handle: RePEc:voj:journl:v:60:y:2013:i:2:p:161-178

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    Web page: http://www.panoeconomicus.rs/

    Related research

    Keywords: Current Account; Budget balance; Twin deficits; Financial integration; Fiscal coordination;

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