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Dynamic relationship between fiscal deficit and current account deficit in India: multivariate cointegration and causality analysis

Author

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  • Manoranjan Sahoo
  • M. Suresh Babu
  • Umakant Dash

Abstract

This study examines the dynamic relationship between fiscal balance and current account balance and also tests the 'twin deficit' hypotheses for India using quarterly data from 1996q1 to 2016q1. Empirical results support the existence of the twin deficit hypothesis and also suggest a reverse causality running from the current account balance to fiscal balance. These results have important policy implications for maintaining a lower current account deficit and fiscal deficit for India in the long run.

Suggested Citation

  • Manoranjan Sahoo & M. Suresh Babu & Umakant Dash, 2022. "Dynamic relationship between fiscal deficit and current account deficit in India: multivariate cointegration and causality analysis," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 16(2/3/4), pages 106-125.
    • Handle: RePEc:ids:ijpubp:v:16:y:2022:i:2/3/4:p:106-125
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