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Does Fiscal Policy Matter for the Trade Account? A Panel Cointegration Study


  • Christiane Nickel
  • Katja Funke


This paper analyzes the empirical relationship between fiscal policy and the trade account. Research prior to this paper did not consider that the components of private and public demand in the import demand equation exhibit different elasticities. Using pooled mean group estimation for annual panel data of the G-7 countries for the years 1970 through 2002, we provide empirical evidence that the composition of overall demand-i.e., the distribution among public demand, private demand, and export demand-has an impact on the magnitude of the trade account deficit.

Suggested Citation

  • Christiane Nickel & Katja Funke, 2006. "Does Fiscal Policy Matter for the Trade Account? A Panel Cointegration Study," IMF Working Papers 06/147, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/147

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    References listed on IDEAS

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    Cited by:

    1. Vansteenkiste, Isabel & Nickel, Christiane, 2008. "Fiscal policies, the current account and Ricardian equivalence," Working Paper Series 935, European Central Bank.
    2. António Afonso & Christophe Rault, 2008. "Budgetary and External Imbalances Relationship : a Panel Data Diagnostic," Working Papers Department of Economics 2008/45, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    3. Alfonso ARPAIA & Alessandro TURRINI, "undated". "Government Expenditure and Economic Growth in the EU: Long-Run Tendencies and Short-Term Adjustment," EcoMod2008 23800006, EcoMod.
    4. Jorge Silva, 2017. "Are external accounts sustainable in Portugal?," Working Papers REM 2017/21, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Mariarosaria Comunale & Jeroen Hessel, 2014. "Current account imbalances in the Euro area: Competitiveness or financial cycle?," DNB Working Papers 443, Netherlands Central Bank, Research Department.
    6. Burcu KIRAN, 2011. "On The Twin Deficits Hypothesis: Evidence From Turkey," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(1).

    More about this item


    Demand; Fiscal policy; trade account; trade elasticities; panel cointegration; expenditure; government expenditure; equations; cointegration; equation; Open Economy Macroeconomics;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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