Determinants of current account in the EU: the relation between internal and external balances in the new members
This paper considers the major determinants of the current account in the new members of the EU. It examines the long-run and short-run impact of real exchange rate, investment, private and public savings on current account. The bounds testing autoregressive distributed lag (ARDL) approach to cointegration is used and the results indicate that twin deficit exists; in another words, government budget deficit shocks have led to deficit in current accounts in Czech Republic, Latvia, Lithuania, Slovenia and Slovakia for the considered period. At the same time, empirical evidence was found that private savings, investment and real exchange rate are key variables as well, causing changes in the current account in the long-run as well as in the short-run. Finally, stability tests were applied to the model indicating no evidence of any structural instability in the model of these countries.
|Date of creation:||2010|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin Feldstein & Charles Horioka, 1979.
"Domestic Savings and International Capital Flows,"
NBER Working Papers
0310, National Bureau of Economic Research, Inc.
- Maurice Obstfeld & Kenneth S. Rogoff, 2005.
"Global Current Account Imbalances and Exchange Rate Adjustments,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
- Kenneth Rogoff & William Brainard & George Perry, "undated". "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
- Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992.
"The Power of Cointegration Tests,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
- Michael D. Bordo, 2006. "Globalization and imbalances in historical perspective," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Jan.
- Enders, Walter & Lee, Bong-Soo, 1990. "Current Account and Budget Deficits: Twins or Distant Cousins?," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 373-81, August.
- Jeffrey A. Rosensweig & Ellis W. Tallman, 1991.
"Fiscal policy and trade adjustment: are the deficits really twins?,"
FRB Atlanta Working Paper
91-2, Federal Reserve Bank of Atlanta.
- Rosenswieg, Jeffrey A & Tallman, Ellis W, 1993. "Fiscal Policy and Trade Adjustment: Are the Deficits Really Twins?," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 580-94, October.
- HENRY, David F. & RICHARD, Jean-François, .
"On the formulation of empirical models in dynamic econometrics,"
CORE Discussion Papers RP
502, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hendry, David F. & Richard, Jean-Francois, 1982. "On the formulation of empirical models in dynamic econometrics," Journal of Econometrics, Elsevier, vol. 20(1), pages 3-33, October.
- Giancarlo Corsetti & Gernot J. Müller, 2005.
"Twin Deficits: Squaring Theory, Evidence and Common Sense,"
Economics Working Papers
ECO2005/22, European University Institute.
- Giancarlo Corsetti & Gernot J. Müller, 2006. "Twin deficits: squaring theory, evidence and common sense," Economic Policy, CEPR;CES;MSH, vol. 21(48), pages 597-638, October.
- Evans, Paul, 1986. "Is the dollar high because of large budget deficits?," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 227-249, November.
- Chinn, Menzie D. & Prasad, Eswar S., 2003.
"Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration,"
Journal of International Economics,
Elsevier, vol. 59(1), pages 47-76, January.
- Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
- Menzie David Chinn & Eswar S Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries; An Empirical Exploration," IMF Working Papers 00/46, International Monetary Fund.
- Salvatore, Dominick, 2006. "Twin deficits in the G-7 countries and global structural imbalances," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 701-712, September.
- Michel Normandin, 1994.
"Budget Deficit Persistence and the Twin Deficits Hypothesis,"
Cahiers de recherche CREFE / CREFE Working Papers
31, CREFE, Université du Québec à Montréal.
- Normandin, Michel, 1999. "Budget deficit persistence and the twin deficits hypothesis," Journal of International Economics, Elsevier, vol. 49(1), pages 171-193, October.
- Michel Normandin, 1996. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Macroeconomics 9607001, EconWPA.
- Christopher J. Erceg & Luca Guerrieri & Christopher J. Gust, 2005.
"Expansionary fiscal shocks and the trade deficit,"
International Finance Discussion Papers
825, Board of Governors of the Federal Reserve System (U.S.).
- William Poole, 2005.
"How dangerous is the U.S. current account deficit?,"
93, Federal Reserve Bank of St. Louis.
- Cletus C. Coughlin & Michael R. Pakko & William Poole, 2006. "How dangerous is the U.S. current account deficit?," The Regional Economist, Federal Reserve Bank of St. Louis, issue Apr, pages 4-9.
- Heino Bohn Nielsen, 2004. "Cointegration analysis in the presence of outliers," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 249-271, 06.
- Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Expansionary Fiscal Shocks and the US Trade Deficit," International Finance, Wiley Blackwell, vol. 8(3), pages 363-397, December.
- Saikkonen, Pentti, 1991. "Asymptotically Efficient Estimation of Cointegration Regressions," Econometric Theory, Cambridge University Press, vol. 7(01), pages 1-21, March.
- B. Douglas Bernheim, 1988. "Budget Deficits and the Balance of Trade," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 1-32 National Bureau of Economic Research, Inc.
- David Hendry, 1995. "On the interactions of unit roots and exogeneity," Economics Papers 7., Economics Group, Nuffield College, University of Oxford.
- Kim, Soyoung & Roubini, Nouriel, 2008.
"Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S,"
Journal of International Economics,
Elsevier, vol. 74(2), pages 362-383, March.
- Soyoung Kim & Nouriel Roubini, 2004. "Twin Deficit or Twin Divergence? Fiscal Policy, Current Account, and Real Exchange Rate in the US," Econometric Society 2004 North American Winter Meetings 271, Econometric Society.
- Michael R. Pakko, 1999. "The U.S. trade deficit and the "new economy"," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 11-20.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:27466. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.