Dynamic relationship between budget deficit and current account deficit in the light of Nigerian empirical application

2019 ◽  
Vol 16 (1) ◽  
pp. 159-179
Author(s):  
Ergin Akalpler ◽  
Yohanna Panshak
Keyword(s):  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Empirical Application ◽  
Dynamic Relationship

Dynamics of Twin Deficits, Ricardian Equivalence, and Feldstein-Horioka Puzzle in South Asian Countries

2021 ◽  
Vol 39 (8) ◽  
Author(s):  
Kashif Munir ◽  
Kinza Mumtaz
Keyword(s):  
Sri Lanka ◽  
South Asian ◽  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Ricardian Equivalence ◽  
Asian Countries ◽  
Twin Deficits ◽  
Role Of Government ◽  
Private Savings

This study examines the relationship between budget deficit and current account deficit, specifically twin deficits hypothesis, Ricardian equivalence hypothesis, and Feldstein-Horioka puzzle in South Asian countries. Results show that budget deficit and private savings investment balance do not affect current account deficit in the long run and rejects the Keynesian view of twin deficits hypothesis in South Asian countries. No causality exists between current account deficit and budget deficit in India, Pakistan, and Sri Lanka in short run, while bidirectional causality exists in Bangladesh. Ricardian equivalence hypothesis is rejected in Bangladesh and Sri Lanka, while it holds in India and Pakistan. Feldstein-Horioka puzzle exists in Bangladesh and Sri Lanka, while it does not exist in India and Pakistan. Structural reforms in fiscal and trade sector are required to avoid emergence of twin deficits, while an active and effective role of government is required for sustainable economic growth.

scholarly journals The Twin Deficits Phenomenon: Evidence from Pakistan

2000 ◽  
Vol 39 (4II) ◽  
pp. 535-550 ◽  
Author(s):  
Anjum Aqeel ◽  
Mohammed Nishat
Keyword(s):  
Fiscal Policy ◽  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Theoretical Work ◽  
Current Account Balance ◽  
Improved Performance ◽  
Necessary And Sufficient ◽  
The Relationship ◽  
The Current Account

Like most developing countries a steady budget deficit in Pakistan is the primary cause of all major ills of the economy. It has varied between 5.4 to 8.7 percent during last two decades. On the other hand the current account deficit varied between 2.7 to 7.2 percent during the same period. The variations in fiscal policy can lead to predictable developments in an open economy’s performance on current account, remains a controversial issue. An important aspect of this issue concerns what is termed as twin deficit analysis, according to which fiscal deficits and current account balances are very closely related so that reductions in the former are both necessary and sufficient to obtain improved performance in the later. Theoretical work on the relationship that exist between variations in fiscal policy and the current account balance has been based upon two types of models. These models are constructed from postulated behavioural relationships that purport to describe how the economy works in aggregate without explaining the behaviour of agents who make up the economy [Mundel (1963); Branson (1976); Dornbusch (1976); Kawai (1985) and Marston (1985)]. The second type of model, derives the important macroeconomic relationships from the microfoundations of individual optimising behaviour [Dixit (1978); Neary (1980); Obstfeld (1981); Persson (1982); Kimbrough (1985); Frenkel and Razin (1986); Cuddington and Vinals (1985, 1986a) and Moore (1989)]. However, both of these approaches have yielded divergent results.

Twin deficits hypothesis in Bangladesh: an empirical investigation

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sima Rani Dey ◽  
Mohammad Tareque
Keyword(s):  
Current Account ◽  
Budget Deficit ◽  
Good Governance ◽  
Current Account Deficit ◽  
Trade Deficit ◽  
Fiscal Deficit ◽  
Twin Deficits ◽  
Content Type ◽  
Long Run ◽  
The Current Account

PurposeThis study attempts to examine the twin deficits hypothesis for Bangladesh. Along with the traditional twin deficits hypothesis associated with the current account and fiscal deficit, the paper also explores the causal relationship between the trade deficit and fiscal deficit.Design/methodology/approachWe start with the investigation of the conventional twin deficit hypothesis employing autoregressive distributed lag (ARDL) bounds testing approach in a multivariate framework. Due to the absence of cointegration between the budget deficit and trade deficit, the study adopts a multivariate vector autoregressive (VAR) model to analyze the nexus.FindingsThe study supports the presence of the twin deficits hypothesis in Bangladesh, both in the short run and long run. Unidirectional causation running from the budget deficit to the current account deficit in the long run. The trade model also supports the twin deficit hypothesis, like the aforementioned current account model.Practical implicationsTherefore, the sustainable fiscal deficit is the key to maintain a stable current account deficit and trade deficit in Bangladesh.Originality/valueThe study incorporates the country risk indicators to address the governance issue while analyzing the models' deficit scenarios because good governance is an integral part of explaining the development outcome and failure of a country like Bangladesh.

scholarly journals Twin Deficit and the Macroeconomic variables in Kenya

2014 ◽  
Vol 2 (9) ◽  
pp. 64-85
Author(s):  
Kennedy O Osoro ◽  
Seth O Gor ◽  
Mary L Mbithi
Keyword(s):  
Interest Rates ◽  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Empirical Relationship ◽  
Trade Deficit ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Domestic Investment ◽  
Macroeconomic Variables

The purpose of this paper is to test the twin deficit hypothesis and empirical relationship between current account balance and budget deficit while including other important macroeconomic variables such as growth, interest rates, money supply (M3) in Kenya from 1963-2012. The study was based on co integration analysis and error correction model (ECM). The results reveal a long-run association between the trade deficit and the fiscal deficit. The findings indicate that the Keynesian view fits well for Kenya since the causality runs from budget deficit to current account deficit. We detected unidirectional causation between the twin deficits, running from budget deficit to current account directly and indirectly through budget deficits which raise real interest rates, crowd out domestic investment, and cause the currency to appreciate in relation to the other currencies and further deteriorates the current account deficit.

scholarly journals Analysing the Relationship between Budget Deficit and Current Account Deficit in Namibia

2020 ◽  
pp. 35-43
Author(s):  
Achiles Shifidi ◽  
Jacob M. Nyambe
Keyword(s):  
Causal Relationship ◽  
Current Account ◽  
Budget Deficit ◽  
Time Series Data ◽  
Current Account Deficit ◽  
Impulse Response Function ◽  
Transmission Mechanism ◽  
Series Data ◽  
Current Account Balance ◽  
The Government

Is there a causal relationship between budget deficit and current account deficit? This study attempts to explain the significance of the transmission mechanism, (the exchange rate and interest rate) in explaining the twin deficit hypothesis (i.e. budget deficit and current account deficit) in Namibia. The study employed analytical methods of unit roots, cointegration, Granger-causality, and the impulse response function for estimation. In contributing to this ongoing debate, the study used the case of Namibia over the period spanning from 1990-2014 using time series data. Budget deficit and current account deficit proved to be significant. There is a unidirectional causal relationship between budget deficit and current account deficit in Namibia which runs from current account deficit to budget deficit. However, the transmission mechanism proved to be less significant in explaining the twin deficit hypothesis in Namibia.  Having found a positive relationship between current account deficit and budget deficit in Namibia, the government should consider curbing the increasing current account balance as a way of reducing its adverse effect on the budget balance. From this study, it is indicated that stabilising the current account deficit problem could assist in managing the budget deficit problem in Namibia.

scholarly journals Twin Deficits and Feldstein-Horioka Puzzle in the Case Iran

2012 ◽  
Vol 3 (5) ◽  
pp. 167-171 ◽  
Author(s):  
Farzane Bagheri ◽  
Fatemeh Daroghe Hazrati .
Keyword(s):  
Current Account ◽  
Capital Mobility ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
International Capital ◽  
Twin Deficits ◽  
International Capital Mobility ◽  
Long Run ◽  
Causality Relationship ◽  
The Relationship

The main purpose of this study is to examine the relationship between budget deficit and current account deficit in Iran's economy through twin deficits and Feldstein-Horioka puzzle. To achieve this goal, Engel-Granger and seemingly unrelated regressions are used during "1971-2007". The results indicate that there exists a long run equilibrium link between budget deficit and current account deficit. There is a one–way causality relationship from the budget deficit toward the current account deficit .Testing the validity of the Feldstein-Horioka puzzle indicates a low level of international capital mobility for Iran.

scholarly journals Testing for Twin Deficits and Ricardian Equivalence Hypotheses: Evidence from Iran

2012 ◽  
Vol 3 (3) ◽  
pp. 77-84 ◽  
Author(s):  
Farzane Bagheri ◽  
Salma Keshtkaran .
Keyword(s):  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Ricardian Equivalence ◽  
Twin Deficits ◽  
Long Run ◽  
Causality Tests ◽  
Causality Relationship ◽  
The Relationship ◽  
Casual Relationship

The main purpose of this study is to examine the relationship between budget deficit and current account deficit in Iran from 1971 to 2007. Twin deficits, which argues that a larger budget deficit leads to an expanded current account deficit, and Ricardian equivalence hypothesis, which states that there is no casual relationship between these two deficits, are examined for this purpose. To achieve this goal, Johansen co-integration and Granger causality tests are used for the period under study. The results indicate that there exists a long run equilibrium link between budget deficit and current account deficit. There is a one-way causality relationship from the budget deficit toward the current account deficit.

Sign in / Sign up

Export Citation Format

Share Document