IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The twin deficits hypothesis: Revisiting an EMU country

  • Kalou, Sofia
  • Paleologou, Suzanna-Maria

We re-examine the issue of the twin deficits hypothesis since recent theoretical and empirical analysis suggests that this hypothesis is subject to structural shifts, the identification of which is very important for policymakers in order to take the correct decisions to overcome situations of economic turmoil. We utilise a different empirical approach and we extend the data sets. We use a multivariate Vector Error Correction framework including the endogenous determination of structural breaks, to determine the causal relation between the budget deficit and the current account deficit for Greece. The two deficits are found to be positively linked through the Current Account Targeting Hypothesis.

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.

File URL: http://www.sciencedirect.com/science/article/pii/S0161893811000548
Download Restriction: Full text for ScienceDirect subscribers only

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.

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 34 (2012)
Issue (Month): 2 ()
Pages: 230-241

as
in new window

Handle: RePEc:eee:jpolmo:v:34:y:2012:i:2:p:230-241
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505735

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.:

as in new window
  1. 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.
  2. Janardhanan Alse & Mohsen Bahmani-Oskooee, 1992. "Are The Twin Deficits Really Related? A Comment," Contemporary Economic Policy, Western Economic Association International, vol. 10(1), pages 108-111, 01.
  3. Abell, John D., 1990. "Twin deficits during the 1980s: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 12(1), pages 81-96.
  4. Markku Lanne & Helmut Lutkepohl & Pentti Saikkonen, 2003. "Test Procedures for Unit Roots in Time Series with Level Shifts at Unknown Time," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(1), pages 91-115, February.
  5. Ki-Ho Kim, 1995. "On the Long-Run Determinants of the U.S. Trade Balance: A Comment," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 17(3), pages 447-455, April.
  6. Ahmad Zubaidi Baharumshah & Evan Lau, 2007. "Dynamics of fiscal and current account deficits in Thailand: an empirical investigation," Journal of Economic Studies, Emerald Group Publishing, vol. 34(6), pages 454-475, November.
  7. Kearney, Colm & Monadjemi, Mehdi, 1990. "Fiscal policy and current account performance: International evidence on the twin deficits," Journal of Macroeconomics, Elsevier, vol. 12(2), pages 197-219.
  8. Evans, Paul, 1986. "Is the dollar high because of large budget deficits?," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 227-249, November.
  9. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  10. Lawrence H. Summers, 1986. "Tax Policy and International Competitiveness," NBER Working Papers 2007, National Bureau of Economic Research, Inc.
  11. Jeffrey A. Rosensweig & Ellis W. Tallman, 1991. "Fiscal policy and trade adjustment: are the deficits really twins?," Working Paper 91-2, Federal Reserve Bank of Atlanta.
  12. 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.
  13. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  14. Cardia, Emanuela, 1997. "Replicating Ricardian Equivalence Tests with Simulated Series," American Economic Review, American Economic Association, vol. 87(1), pages 65-79, March.
  15. 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.
  16. Hubbard, R. Glenn, 2006. "The U.S. current account deficit and public policy," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 665-671, September.
  17. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  18. Oltheten, Elisabeth & Pinteris, George & Sougiannis, Theodore, 2003. "Greece in the European Union: policy lessons from two decades of membership," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(5), pages 774-806.
  19. Alberto Bagnai, 2006. "Structural breaks and the twin deficits hypothesis," International Economics and Economic Policy, Springer, vol. 3(2), pages 137-155, November.
  20. 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.
  21. 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.
  22. Saikkonen, Pentti & Lütkepohl, Helmut, 2001. "Testing for the cointegrating rank of a VAR process with structural shifts," SFB 373 Discussion Papers 1998,82, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  23. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  24. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
  25. George Vamvoukas, 1999. "The twin deficits phenomenon: evidence from Greece," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1093-1100.
  26. Basudeb Biswas & Gopal Tribedy & Peter Saunders, 1992. "Further Analysis Of The Twin Deficits," Contemporary Economic Policy, Western Economic Association International, vol. 10(1), pages 104-107, 01.
  27. Frankel, Jeffrey, 2006. "Could the twin deficits jeopardize US hegemony?," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 653-663, September.
  28. Mohsen Bahmani-Oskooee, 1992. "What Are the Long-Run Determinants of the U.S. Trade Balance?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 15(1), pages 85-97, October.
  29. Lori Leachman & Bill Francis, 2002. "Twin Deficits: Apparition or Reality?," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1121-1132.
  30. Mohsen Bahmani-Oskooee, 1995. "The Long-Run Determinants of the U.S. Trade Balance Revisited," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 17(3), pages 457-465, April.
  31. 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.
  32. Salvatore, Dominick, 2006. "Twin deficits, growth and stability of the US economy: Editor's introduction," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 603-604, September.
  33. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
  34. Saikkonen, Pentti & L tkepohl, Helmut, 2000. "Testing For The Cointegrating Rank Of A Var Process With An Intercept," Econometric Theory, Cambridge University Press, vol. 16(03), pages 373-406, June.
  35. William G. Dewald & Michael Ulan, 1990. "The Twin-Deficit Illusion," Cato Journal, Cato Journal, Cato Institute, vol. 9(3), pages 689-707, Winter.
  36. Sylvia KAUFMANN & Johann SCHARLER & Georg WINCKLER, 1999. "The Austrian current account deficit: Driven by twin deficits or by intertemporal expenditure allocation?," Vienna Economics Papers vie9903, University of Vienna, Department of Economics.
  37. 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.
  38. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  39. Abdulnasser Hatemi-J & Ghazi Shukur, 2002. "Multivariate-based causality tests of twin deficits in the US," Journal of Applied Statistics, Taylor & Francis Journals, vol. 29(6), pages 817-824.
  40. 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.
  41. 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.
  42. Buchanan, James M, 1976. "Barro on the Ricardian Equivalence Theorem," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 337-42, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jpolmo:v:34:y:2012:i:2:p:230-241. 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 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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.