Does fiscal policy matter for the trade account? A panel cointegration study

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Does fiscal policy matter for the trade account? A panel cointegration study

Author Info

Katja Funke () (International Monetary Fund, 700 19th Street, N.W., Washington, D. C. 20431, USA.)
Christiane Nickel () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

Abstract

This paper analyses the empirical relationship between fiscal policy and the trade account. Research prior to this paper did not consider that the components of private and public demand in the import demand equation exhibit different elasticities. Using pooled mean group estimation for annual panel data of the G7 countries for the years 1970 through 2002, we provide empirical evidence that the composition of overall demand – i.e. the distribution among public demand, private demand and export demand – has an impact on the magnitude of the trade account deficit. JEL Classification: F32; E62; F41.

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Paper provided by European Central Bank in its series Working Paper Series with number 620.

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Length: 31 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:ecb:ecbwps:20060620

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This paper has been announced in the following NEP Reports:

NEP-ALL-2006-06-03 (All new papers)
NEP-INT-2006-06-03 (International Trade)
NEP-MAC-2006-06-03 (Macroeconomics)
NEP-PBE-2006-06-03 (Public Economics)

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