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Fiscal Imbalances and Current Account Adjustments in the European Transition Economies


  • Mirdala, Rajmund


Origins and implications of twin deficits occurrence in a large scale of countries seems to be a center of rigorous empirical as well as theoretical investigation for decades. The reality of persisting fiscal and current account deficits became obvious in many advanced as well as advancing, emerging and low-income countries seemingly without a direct association with the phase of business cycle or trends in key fundamental indicators. European transition economies experienced current account deficits during the most of the pre-crisis period. Despite generally improved economic environment and high rates of economic growth it seems that countries with weaker nominal anchor experienced periods of persisting fiscal imbalances during the most of the pre-crisis period. Crises period affected both fiscal stance of government budgets and current account pre-crisis levels and trends in all countries from the group. As a result, leading path of both indicators significantly changed. In the paper we analyze effects of fiscal policies on current accounts in the European transition economies. Our main objective is to investigate causal relationship between fiscal policy discretionary changes and associated current account adjustments. We identify episodes of large current account and fiscal policy changes to provide an in-depth insight into frequency as well as parallel occurrence of deteriorations (improvements) in current accounts and fiscal stance of government budgets. From employed VAR model we estimate responses of current accounts in each individual country to the cyclically adjusted primary balance shocks.

Suggested Citation

  • Mirdala, Rajmund, 2013. "Fiscal Imbalances and Current Account Adjustments in the European Transition Economies," MPRA Paper 50362, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:50362

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    References listed on IDEAS

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    Cited by:

    1. Mirdala, Rajmund, 2015. "Real Exchange Rates, Current Accounts and Competitiveness Issues in the Euro Area," MPRA Paper 68864, University Library of Munich, Germany.

    More about this item


    fiscal imbalances; current account adjustments; economic crisis; vector autoregression; impulse-response function;

    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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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