IDEAS home Printed from https://ideas.repec.org/a/eaa/aeinde/v19y2019i1_3.html
   My bibliography  Save this article

“Twins” Or Just “Siblings”?Budget And Current Account Deficits In Europe, 1870-2013

Author

Listed:
  • Georgios KARRAS

Abstract

Using data for twelve European countries over the period 1870-2013, the response of the current account balance to the budget deficit is found to be inverse-hump-shaped: an increase in the budget deficit results in a current account deterioration that is sizeable but less than one-to-one (so the two balances are “siblings” rather than “twins”), and persistent but temporary. Specifically, an increase in the fiscal deficit by 1% of GDP results in deterioration of the current account that peaks at about 0.25% of GDP but dies out after a maximum of ten years.

Suggested Citation

  • Georgios KARRAS, 2019. "“Twins” Or Just “Siblings”?Budget And Current Account Deficits In Europe, 1870-2013," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 19(1), pages 33-42.
    • Handle: RePEc:eaa:aeinde:v:19:y:2019:i:1_3
    as

    Download full text from publisher

    File URL: http://www.usc.es/~economet/reviews/aeid1913.pdf
    Download Restriction: No.
    ---><---

    References listed on IDEAS

    as
    1. Forni, Mario & Gambetti, Luca, 2016. "Government spending shocks in open economy VARs," Journal of International Economics, Elsevier, vol. 99(C), pages 68-84.
    2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, April.
    3. Eichenbaum, Martin & Parker, Jonathan A. (ed.), . "NBER Macroeconomics Annual 2017," National Bureau of Economic Research Books, University of Chicago Press, number 9780226577838, July.
    4. Hany Eldemerdash & Hugh Metcalf & Sara Maioli, 2014. "Twin deficits: new evidence from a developing (oil vs. non-oil) countries’ perspective," Empirical Economics, Springer, vol. 47(3), pages 825-851, November.
    5. Stefano Eusepi & Bruce Preston, 2018. "The Science of Monetary Policy: An Imperfect Knowledge Perspective," Journal of Economic Literature, American Economic Association, vol. 56(1), pages 3-59, March.
    6. Eichenbaum, Martin & Parker, Jonathan A. (ed.), . "NBER Macroeconomics Annual 2016," National Bureau of Economic Research Books, University of Chicago Press, number 9780226490229.
    7. Alan J Auerbach & Yuriy Gorodnichenko, 2016. "Effects of Fiscal Shocks in a Globalized World," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(1), pages 177-215, May.
    8. John Bluedorn & Daniel Leigh, 2011. "Revisiting the Twin Deficits Hypothesis: The Effect of Fiscal Consolidation on the Current Account," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(4), pages 582-602, November.
    9. Martin Eichenbaum & Jonathan A. Parker, 2017. "NBER Macroeconomics Annual 2016, Volume 31," NBER Books, National Bureau of Economic Research, Inc, number eich-3.
    10. Kim, Soyoung & Roubini, Nouriel, 2008. "Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S," Journal of International Economics, Elsevier, vol. 74(2), pages 362-383, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Georgios Karras, 2020. "Are "Twin Deficits" an Illusion? International Evidence on Fiscal Policy and the Current Account," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 18(2), pages 139-157.
    2. Karras, Georgios, 2019. "Are “twin deficits” asymmetric? Evidence on government budget and current account balances, 1870–2013," International Economics, Elsevier, vol. 158(C), pages 12-24.
    3. Patrick Blagrave & Giang Ho & Ksenia Koloskova & Mr. Esteban Vesperoni, 2017. "Fiscal Spillovers: The Importance of Macroeconomic and Policy Conditions in Transmission," IMF Spillover Notes 2017/002, International Monetary Fund.
    4. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    5. Cohen, Samuel N. & Henckel, Timo & Menzies, Gordon D. & Muhle-Karbe, Johannes & Zizzo, Daniel J., 2019. "Switching cost models as hypothesis tests," Economics Letters, Elsevier, vol. 175(C), pages 32-35.
    6. Barry Eichengreen & Arnaud Mehl & Livia Chiţu & Thorsten Beck, 2019. "Mars or Mercury? The geopolitics of international currency choice," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 34(98), pages 315-363.
    7. Engelbert Stockhammer & Giorgos Gouzoulis & Rob Calvert Jump, 2019. "Debt-driven business cycles in historical perspective: The cases of the USA (1889-2015) and UK (1882-2010)," Working Papers PKWP1907, Post Keynesian Economics Society (PKES).
    8. Erik Bengtsson & Enrico Rubolino & Daniel Waldenström, 2020. "What Determines the Capital Share over the Long Run of History?," World Inequality Lab Working Papers hal-02876964, HAL.
    9. Niklas Potrafke & Fabian Ruthardt & Kaspar Wuthrich, 2020. "Protectionism and economic growth: Causal evidence from the first era of globalization," Papers 2010.02378, arXiv.org, revised Mar 2022.
    10. Matthias Hartmann & Helmut Herwartz, 2012. "Consolidation first - About twin deficits and the causal relation between fiscal budget and current account imbalances," Economics Bulletin, AccessEcon, vol. 32(4), pages 3313-3319.
    11. Stephen S. Poloz, 2019. "Changing Fortunes: Long-Termism—G-Zero, Artificial Intelligence and Debt," Discussion Papers 2019-12, Bank of Canada.
    12. Michael D. Bordo, 2017. "The Second Era of Globalization Is Not yet Over: An Historical Perspective," Economics Working Papers 17103, Hoover Institution, Stanford University.
    13. Kiley, Michael T., 2021. "What macroeconomic conditions lead financial crises?," Journal of International Money and Finance, Elsevier, vol. 111(C).
    14. repec:ces:ifodic:v:15:y:2018:i:4:p:50000000000853 is not listed on IDEAS
    15. Paul Wachtel, 2018. "Credit Deepening: Precursor to Growth or Crisis?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(1), pages 34-43, March.
    16. Ferrara, Laurent & Metelli, Luca & Natoli, Filippo & Siena, Daniele, 2021. "Questioning the puzzle: Fiscal policy, real exchange rate and inflation," Journal of International Economics, Elsevier, vol. 133(C).
    17. Rajeev K. Goel & James W. Saunoris & Friedrich Schneider, 2019. "Growth In The Shadows: Effect Of The Shadow Economy On U.S. Economic Growth Over More Than A Century," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 50-67, January.
    18. Giorgos Galanis & Giorgos Gouzoulis, 2020. "Financialisation, working conditions and contagion dynamics in developing and emerging economies," Working Papers PKWP2018, Post Keynesian Economics Society (PKES).
    19. Giorgos Gouzoulis, 2021. "Finance, Discipline and the Labour Share in the Long‐Run: France (1911–2010) and Sweden (1891–2000)," British Journal of Industrial Relations, London School of Economics, vol. 59(2), pages 568-594, June.
    20. Baltussen, Guido & Swinkels, Laurens & Van Vliet, Pim, 2021. "Global factor premiums," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1128-1154.
    21. B. De Backer & M. Deroose & Ch. Van Nieuwenhuyze, 2019. "Is a recession imminent? The signal of the yield curve," Economic Review, National Bank of Belgium, issue i, pages 69-93, June.

    More about this item

    Keywords

    Twin Deficits; Budget Deficit; Current Account; Europe; 20th century history.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eaa:aeinde:v:19:y:2019:i:1_3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: M. Carmen Guisan (email available below). General contact details of provider: http://www.usc.es/economet/eaa.htm .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.