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Multivariate-based causality tests of twin deficits in the US

  • Abdulnasser Hatemi-J
  • Ghazi Shukur

This paper provides an alternative methodology for testing the causality direction between twin deficits in the US. Rao's multivariate F-test combined with the bootstrap simulation technique has appealing properties, especially when the data-generating process is characterized by unit roots. In addition the results show that the effect of structural breaks are of paramount importance when the causality tests are conducted. In much contemporary applied econometrics there is all-too-little attention given to the possibility of changes in the economic process.

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Article provided by Taylor & Francis Journals in its journal Journal of Applied Statistics.

Volume (Year): 29 (2002)
Issue (Month): 6 ()
Pages: 817-824

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Handle: RePEc:taf:japsta:v:29:y:2002:i:6:p:817-824
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  1. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  2. 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.
  3. 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.
  4. Kenneth Kasa, 1994. "Finite horizons and the twin deficits," Economic Review, Federal Reserve Bank of San Francisco, pages 19-28.
  5. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  6. 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.
  7. Michel Normandin, 1996. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Macroeconomics 9607001, EconWPA.
  8. Abdulnasser Hatemi-J & Ghazi Shukur, 1999. "The causal nexus of government spending and revenue in Finland: a bootstrap approach," Applied Economics Letters, Taylor & Francis Journals, vol. 6(10), pages 641-644.
  9. Mantalos Panagiotis, 2000. "A Graphical Investigation of the Size and Power of the Granger-Causality Tests in Integrated-Cointegrated VAR Systems," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 4(1), pages 1-18, April.
  10. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  11. 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.
  12. Ghazi Shukur & Panagiotis Mantalos, 2000. "A simple investigation of the Granger-causality test in integrated-cointegrated VAR systems," Journal of Applied Statistics, Taylor & Francis Journals, vol. 27(8), pages 1021-1031.
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