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Budget Balance And Trade Balance:Kin Or Strangers. A Case Study Of Taiwan

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  • Hsiao-chuan Chang
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    Abstract

    In line with the deterioration of Taiwanese budget deficits, the trade surplus has also decreased. It is the ideal time to investigate the relationship between budget balances and trade balances. Unit root tests, cointegration tests, Granger causality tests and the VARs model are techniques used to test the Keynesian proposition and the Ricardian equivalence. The main findings are that Keynesian proposition is supported only by the model using data of the whole period. There is no support for the Ricardian equivalence. That budget balances and trade balances being kin or strangers varies over periods of data used.

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    Bibliographic Info

    Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 893.

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    Length: 24 pages
    Date of creation: 2004
    Date of revision:
    Handle: RePEc:mlb:wpaper:893

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    Keywords: Keynesian proposition; Ricardian equivalence; unit root tests; Grangercausality tests; VARs model;

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    1. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    2. Enders, Walter & Lee, Bong-Soo, 1990. "Current Account and Budget Deficits: Twins or Distant Cousins?," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 373-81, August.
    3. Jeffrey D. Sachs & Nouriel Roubini, 1987. "Sources of Macroeconomic Imbalances in the World Economy: A Simulation Approach," NBER Working Papers 2339, National Bureau of Economic Research, Inc.
    4. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "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?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    5. G. Vamvoukas, 1997. "Have large budget deficits caused increasing trade deficits? Evidence from a developing country," Atlantic Economic Journal, International Atlantic Economic Society, vol. 25(1), pages 80-90, March.
    6. Fisher, Eric O'N, 1995. "A New Way of Thinking about the Current Account," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 555-68, August.
    7. Perron, P. & Ng, S., 1994. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Cahiers de recherche 9427, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
    8. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
    9. B. Douglas Bernheim, 1988. "Budget Deficits and the Balance of Trade," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 1-32 National Bureau of Economic Research, Inc.
    10. Kenneth Kasa, 1994. "Finite horizons and the twin deficits," Economic Review, Federal Reserve Bank of San Francisco, pages 19-28.
    11. Stephen M. Miller & Frank S. Russek, 1989. "Are The Twin Deficits Really Related?," Contemporary Economic Policy, Western Economic Association International, vol. 7(4), pages 91-115, October.
    12. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
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