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Budgetary and External Imbalances Relationship: A Panel Data Diagnostic

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Author Info
António Afonso ()
Christophe Rault ()

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Abstract

We assess the cointegration relationship between current account and budget balances, and effective real exchange rates, using recent bootstrap panel cointegration techniques and SUR methods. We investigate the magnitude of the relationship between the two imbalances for each country for the period 1970-2007, and for different EU and OECD country groupings. The panel cointegration tests used allow for within and between correlation, while the SUR results show both positive and negative effects of budget balances on current account balances for several countries. The magnitude of the effects varies across countries, and there is no evidence pointing to a direct and close relationship between budgetary and current account balances.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2559.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2559

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Related research
Keywords: budget balance; external balance; EU; panel cointegration;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
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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    Other versions:
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    Other versions:
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  1. António Afonso & Christophe Rault, 2009. "Bootstrap Panel Granger-Causality Between Government Budget and External Deficits for the EU," Working Papers 2009/02, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
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