We argue that the interactions among the current account and budget balances and the real interest rate can provide more information about the effective degree of financial openness of an economy than simple saving-investment correlations. Cointegration tests reveal a variety of linkages between the variables across countries. A number of economies (Canada, Germany, Netherlands, and increasingly the UK) appear to be small and open, while Japan and the USA are effectively closed. The "twin deficits" and "current account targeting" hypotheses receive some support in the short run.
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Paper provided by National University of Ireland, Galway - Department of Economics in its series Department of Economics with number
49.
Find related papers by JEL classification: F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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