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The Twin Deficits in Selected Central and Eastern European Economies: Bounds Testing Approach with Causality Analysis

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  • Tosun, M. Umur

    (Department of Public Finance, Hacettepe University, Ankara, Turkey)

  • Iyidogan, Pelin Varol

    (Department of Public Finance, Hacettepe University, Ankara, Turkey)

  • Telatar, Erdinç

    (Okan University, Department of Banking and Finance, Istanbul,Turkey)

Abstract

The aim of our paper is to explore empirically the existence of the long-run relationship and the direction of causality between the budget and current account deficits for some selected Central and Eastern European economies. Bulgaria, Latvia, Lithuania, Poland, Romania, Serbia and Slovenia are the sample countries. The empirical analysis hinges on the Pesaran, Shin, and Smith (2001) bounds testing approach to co-integration and Granger non-causality. No evidence in favor of twin deficits hypothesis has been obtained for the selected countries, except for Bulgaria, as the results support non-causality.

Suggested Citation

  • Tosun, M. Umur & Iyidogan, Pelin Varol & Telatar, Erdinç, 2014. "The Twin Deficits in Selected Central and Eastern European Economies: Bounds Testing Approach with Causality Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 141-160, June.
  • Handle: RePEc:rjr:romjef:v::y:2014:i:2:p:141-160
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    More about this item

    Keywords

    budget deficit; current account deficit; twin deficits hypothesis; bounds testing; Granger non-causality;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F30 - International Economics - - International Finance - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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