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Twin Deficits, Real Interest Rates and International Capital Mobility


  • Stilianos Fountas
  • Christopher Tsoukis

    (Department of Economics, National University of Ireland, Galway)


We argue that the interactions among the current account and budget balances and the real interest rate can provide more information about the effective degree of financial openness of an economy than simple saving-investment correlations. Cointegration tests reveal a variety of linkages between the variables across countries. A number of economies (Canada, Germany, Netherlands, and increasingly the UK) appear to be small and open, while Japan and the USA are effectively closed.The 'twin deficits' and 'current account targeting' hypotheses receive some support in the short run.

Suggested Citation

  • Stilianos Fountas & Christopher Tsoukis, 2000. "Twin Deficits, Real Interest Rates and International Capital Mobility," Working Papers 0049, National University of Ireland Galway, Department of Economics, revised 2000.
  • Handle: RePEc:nig:wpaper:0049

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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration


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