An empirical analysis of the nexus between external balance and government budget balance: The case of the GIIPS countries
The present study investigates the causality relationship between the external (trade and current account) balance and government budget balance for five countries of the euro area's Mezzogiorno, namely Greece, Ireland, Italy, Portugal, and Spain. These countries, due to their weak economic and financial performances, have been labelled the GIIPS group. The analysis is implemented using two methodologies: the traditional Granger test and the approach developed by Toda–Yamamoto. The results reveal homogeneity in using both approaches and give support to the Ricardian theory, according to which there is no clear nexus between budget-current account balances and budget-trade balances. This implies that fiscal austerity could help the five peripheral countries to conform to the budget deficit criteria as established by the Stability and Growth Pact, but would not be effective in restraining external deficits.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 37 (2013)
Issue (Month): 2 ()
|Contact details of provider:|| Postal: |
Phone: +49-(0)941-943 54 10
Fax: +49-(0)941-943 54 27
Web page: http://www.elsevier.com/locate/inca/621171
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Expansionary Fiscal Shocks and the US Trade Deficit," International Finance, Wiley Blackwell, vol. 8(3), pages 363-397, December.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991.
"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?,"
Cowles Foundation Discussion Papers
979, Cowles Foundation for Research in Economics, Yale University.
- 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.
- Tom Doan, . "KPSS: RATS procedure to perform KPSS (Kwiatowski, Phillips, Schmidt, and Shin) stationarity test," Statistical Software Components RTS00100, Boston College Department of Economics.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- Christopher Erceg & Luca Guerrieri, 2005.
"Expansionary Fiscal Shocks and the Trade Deficit,"
Computing in Economics and Finance 2005
128, Society for Computational Economics.
- Abell, John D., 1990. "Twin deficits during the 1980s: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 12(1), pages 81-96.
- António Afonso & Christophe Rault, 2009.
"Bootstrap Panel Granger-Causality Between Government Budget and External Deficits for the EU,"
Working Papers Department of Economics
2009/02, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Christophe Rault & António Afonso, 2009. "Bootstrap panel granger-causality between government budget and external deficits for the EU," Economics Bulletin, AccessEcon, vol. 29(2), pages 1027-1034.
- António Afonso & Christophe Rault, 2009. "Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU," CESifo Working Paper Series 2581, CESifo Group Munich.
- Feldstein, Martin & Horioka, Charles, 1980.
"Domestic Saving and International Capital Flows,"
Royal Economic Society, vol. 90(358), pages 314-29, June.
- Vince Daly & Jalal Siddiki, 2009.
"The twin deficits in OECD countries: cointegration analysis with regime shifts,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 16(11), pages 1155-1164.
- Daly, Vince & Siddiki, Jalal Uddin, 2007. "The twin deficits in OECD countries: cointegration analysis with regime shifts," Economics Discussion Papers 2007-5, School of Economics, Kingston University London.
- Lawrence H. Summers, 1986.
"Tax Policy and International Competitiveness,"
NBER Working Papers
2007, National Bureau of Economic Research, Inc.
- Anoruo, Emmanuel & Ramchander, Sanjay, 1998. "Current account and fiscal deficits: Evidence from five developing economies of Asia," Journal of Asian Economics, Elsevier, vol. 9(3), pages 487-501.
- Carlos Fonseca Marinheiro, .
"Ricardian Equivalence: An Empirical Application to the Portuguese Economy,"
International Economics Working Papers Series
ces0112, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics.
- Carlos Fonseca Marinheiro, 2001. "Ricardian Equivalence: an Empirical Application to the Portugese Economy," Center for Economic Studies - Discussion papers ces0112, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- MacKinnon, James G, 1996.
"Numerical Distribution Functions for Unit Root and Cointegration Tests,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
- James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
- Kumhof, Michael & Laxton, Douglas, 2013.
"Fiscal deficits and current account deficits,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 37(10), pages 2062-2082.
- Marinheiro, Carlos Fonseca, 2008.
"Ricardian equivalence, twin deficits, and the Feldstein-Horioka puzzle in Egypt,"
Journal of Policy Modeling,
Elsevier, vol. 30(6), pages 1041-1056.
- Carlos Marinheiro, 2006. "Ricardian Equivalence, Twin Deficits, and the Feldstein-Horioka puzzle in Egypt," GEMF Working Papers 2006-07, GEMF - Faculdade de Economia, Universidade de Coimbra.
- Kalou, Sofia & Paleologou, Suzanna-Maria, 2012. "The twin deficits hypothesis: Revisiting an EMU country," Journal of Policy Modeling, Elsevier, vol. 34(2), pages 230-241.
- Salvatore, Dominick, 2006. "Twin deficits in the G-7 countries and global structural imbalances," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 701-712, September.
- Eugene Kouassi & Mbodja Mougoué & Kern O. Kymn, 2004. "Causality tests of the relationship between the twin deficits," Empirical Economics, Springer, vol. 29(3), pages 503-525, 09.
- George Vamvoukas, 1999. "The twin deficits phenomenon: evidence from Greece," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1093-1100.
- Panagiotis Pantelidis & Emmanouil Trachanas & Athanasios L. Athanasenas & Constantinos Katrakilidis, 2009. "On the Dynamics of the Greek Twin Deficits: Empirical evidence over the period 1960 – 2007," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 2(2), pages 9-32, December.
- Chul-Hwan Kim & Donggeun Kim, 2006. "Does Korea have twin deficits?," Applied Economics Letters, Taylor & Francis Journals, vol. 13(10), pages 675-680.
- Lau, E. & Baharumshah, A. Z., 2006. "Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
- Bernardina Algieri, 2011. "Modelling export equations using an unobserved component model: the case of the Euro Area and its competitors," Empirical Economics, Springer, vol. 41(3), pages 593-637, December.
- Michele Cavallo, 2005. "Government consumption expenditures and the current account," Working Paper Series 2005-03, Federal Reserve Bank of San Francisco.
- Ahmed M. Khalid & Teo Wee Guan, 1999. "Causality tests of budget and current account deficits: Cross-country comparisons," Empirical Economics, Springer, vol. 24(3), pages 389-402.
- Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
- Agustin Garcia & Julian Ramajo, 2004. "Budget deficit and interest rates: empirical evidence for Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 11(11), pages 715-718.
- Bussière, Matthieu & Fratzscher, Marcel & Müller, Gernot J., 2005.
"Productivity shocks, budget deficits and the current account,"
Working Paper Series
0509, European Central Bank.
- Bussière, Matthieu & Fratzscher, Marcel & Müller, Gernot J., 2010. "Productivity shocks, budget deficits and the current account," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1562-1579, December.
- Papadogonas, Theodore & Stournaras, Yannis, 2006. "Twin deficits and financial integration in EU member-states," Journal of Policy Modeling, Elsevier, vol. 28(5), pages 595-602, July.
- Piersanti, Giovanni, 2000. "Current account dynamics and expected future budget deficits: some international evidence," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 255-271, April.
- M. Faizul Islam, 1998. "Brazil's twin deficits: An empirical examination," Atlantic Economic Journal, International Atlantic Economic Society, vol. 26(2), pages 121-128, June.
- Cosimo Magazzino, 2012. "Fiscal Policy, Consumption and Current Account in the European Countries," Economics Bulletin, AccessEcon, vol. 32(2), pages 1330-1344.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eee:ecosys:v:37:y:2013:i:2:p:233-253. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.