Have large budget deficits caused increasing trade deficits? Evidence from a developing country
This paper investigates the relationship between budget and trade deficits on the basis of previous empirical work. Within the framework of cointegration analysis, error-correction modeling and Granger causality, the paper evaluates the validity of the Keynesian proposition (conventional view) and the Ricardian equivalence hypothesis. The error-correction modeling approach supports the Keynesian proposition in the short and long run. The empirical evidence reveals one-way causality from budget deficit to trade deficit. Copyright International Atlantic Economic Society 1997
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Volume (Year): 25 (1997)
Issue (Month): 1 (March)
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- 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.
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- Michael Hutchison & Charles Pigott, 1984. "Budget deficits, exchange rates and the current account: theory and U. S. evidence," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 5-25.
- David Alan Aschauer, 1986. "Fiscal policy and the trade deficit," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 15-22. Full references (including those not matched with items on IDEAS)
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