Fiscal Deficit, Current Account Deficit, and Capital Flows in India : An Empirical Investigation Using Granger Causality Test

2018 ◽  
Vol 7 (4) ◽  
pp. 7
Author(s):  
N. Kubendran
Keyword(s):  
Granger Causality ◽  
Current Account ◽  
Capital Flows ◽  
Empirical Investigation ◽  
Current Account Deficit ◽  
Granger Causality Test ◽  
Fiscal Deficit ◽  
Causality Test

scholarly journals Explaining India’s current account deficit: a time series perspective

2019 ◽  
Vol 26 (1) ◽  
pp. 117-138
Author(s):  
Harendra Kumar Behera ◽  
Inder Sekhar Yadav
Keyword(s):  
Current Account ◽  
Unit Root ◽  
Current Account Deficit ◽  
Structural Break ◽  
Current Account Balance ◽  
Fiscal Deficit ◽  
Causality Test ◽  
Content Type ◽  
Financial Account ◽  
Cointegration Tests

Purpose The purpose of this paper is to examine the issue of high current account deficit (CAD) from various perspectives focussing its behaviour, financing pattern and sustainability for India. Design/methodology/approach To begin with the trends, composition and dynamics of CAD for India are analysed. Next, the influence of capital flows on current account is investigated using Granger non-causality test proposed by Toda and Yamamoto (1995) between current account balance (CAB) to GDP ratio and financial account balance to GDP ratio. Also, the sustainability of India’s current account is examined using different econometrics techniques. In particular, Husted’s (1992), Johansen’s cointegration and vector error correction model (VECM) is applied along with conducting unit root and structural break tests wherever applicable. Further, long-run and short-run determinants of the CAB are estimated using Johansen’s VECM. Findings The study found that the widening of CAD is due to fall in household financial savings and corporate investments. Also, it was found that a large part of India’s CAD has been financed by FDI and portfolio investments which are partly replaced by short-term volatile flows. The unit root and cointegration tests indicate a sustainable current account for India. Further, econometric analysis reveals that India’s current account is driven by fiscal deficit, terms of trade growth, inflation, real deposit rate, trade openness, relative income growth and the age dependency factor. Practical implications Since India’s CAD has widened and is expected to widen primarily due to rise in gold and oil imports, policy makers should focus on achieving phenomenal export growth so that a sustainable current account is maintained. Also, with rising working-age and skilled population, India should focus more on high-value product exports rather than low-value manufactured items. Further, on the structural side it is important to correct fiscal deficit as it is one of the important factors contributing to large CAD. Originality/value The paper is an important empirical contribution towards explaining India’s CAD over time using latest and comprehensive data and econometric models.

scholarly journals The Causal Relationship Between Institutions and Economic Growth: An Empirical Investigation for Pakistan Economy

2019 ◽  
Vol 5 (1) ◽  
pp. 1 ◽  
Author(s):  
Danish Ahmed Siddiqui ◽  
Qazi Masood Ahmed
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Economic Performance ◽  
Empirical Investigation ◽  
Institutional Quality ◽  
Granger Causality Test ◽  
Causality Test ◽  
Long Run ◽  
Study Results ◽  
Short Run

This paper investigates relationship between institutional quality and economic performance in Pakistan using the Johansen-Juselius cointegration technique and the Granger causality test. The study results indicate that Institutions and growth are cointegrated and thus exhibit a reliable long run relationship. The Granger causality test findings indicate that the causality between Institutions and growth is uni-directional.However, there is no short run causality from Institutions to growth and vice versa. Therefore, as a policy implication that institutional quality may cause to the sustainable increase in country’s income in the long run, and success of any policy could be influenced by the soundness of institutions.

scholarly journals Twin Deficit Hypothesis: A Case of Pakistan

2018 ◽  
Vol 2 (1) ◽  
pp. 71 ◽  
Author(s):  
Farrah Yasmin
Keyword(s):  
Granger Causality ◽  
Current Account ◽  
Budget Deficit ◽  
Time Series Data ◽  
Current Account Deficit ◽  
Impulse Response Function ◽  
Unit Root Test ◽  
Series Data ◽  
Causality Test ◽  
Adf Test

The prime motive of this study is to scrutinize the twin deficit for annual time series data over the period 1990-2010 for Pakistan. Twin deficit hypothesis expressed that an expansion in budget deficit will ground for rise in current account deficit. To diagnose affiliation amongst couple of variables, applied Unit root test (ADF-test), Johansen cointegration technique, Impulse response function and Granger causality test. The Granger causality demonstrate that the causality direction travel from current account deficit to budget deficit. When current account deficit occurs it leads to budget deficit. So the finding proves that there is a positive connection among both variables. Investigations are most reliable for Pakistan economy. Finally, this study confirms the rapport amid current account deficit and budget deficit.

scholarly journals EXAMINING THE TWIN DEFICIT HYPOTHESIS: EVIDENCE FROM SELECTED SADC COUNTRIES (1980-2011)

2019 ◽  
Vol 2 (1) ◽  
pp. 1-16
Author(s):  
REGINALD CHAONEKA
Keyword(s):  
Granger Causality ◽  
Current Account ◽  
Causal Relation ◽  
Granger Causality Test ◽  
Series Data ◽  
Current Account Balance ◽  
Fiscal Consolidation ◽  
Causality Test ◽  
Fiscal Balance ◽  
The Current Account

This paper investigates the existence of a causal relationship between fiscal balance and current account balance over the period 1980-2011, for nine SADC countries individually. The analysis is conducted within the framework of Granger causality test and Vector Auto Regression (VAR) approach on time series data for each individual country estimates. The Granger causality test results confirm the twin-deficit relationship, with a causal relation from fiscal deficits to external deficits for two countries: Malawi and Zambia together with SADC group average; inverse link operating from external balance to fiscal balance for another two countries: Zimbabwe and Swaziland. Existence of bi-directional causality was confirmed for Botswana and Ricardian Equivalence Hypothesis was confirmed for Mozambique. Results for Angola, South Africa and Seychelles were ambiguous hence inconclusive. The results point to the existence of a direct causal link from fiscal deficit to external deficit. There are indications that fiscal tightening (budget cuts) tends to correct the current account deficit directly. There is need for government to develop new exports, primary products beneficiation (value addition), use of nanotechnology and nurturing new export industries as a long-term measure.In Zimbabwe and to some extent Swaziland the current account can be used to address the budget balance. Countries such as Malawi and Zambia, which have shown evidence of the twin deficit, imply that policymakers must consider fiscal consolidation. Fiscal consolidation has proved to be effective;however half-hearted fiscal adjustments are doomed to fail. The relationship between the twomacroeconomic variables changes over time depending on the dynamics of the economy. Again, given the intricacies that are innate in mixed economies, it may not be possible to authenticate a tight and steady connection between the two deficits. Government Organizations.

scholarly journals HUBUNGAN KAUSALITAS DEFISIT NERACA TRANSAKSI BERJALAN DENGAN KURS DI INDONESIA

2017 ◽  
Vol 4 (1) ◽  
pp. 18
Author(s):  
Didiet Purnomo ◽  
Wahyudi Wahyudi
Keyword(s):  
Granger Causality ◽  
Current Account ◽  
Granger Causality Test ◽  
Causality Analysis ◽  
Analysis Method ◽  
Causality Test ◽  
Granger Causality Analysis ◽  
Current Transaction ◽  
Stationary Test

This research is aimed at understanding the relation pattern of the current transaction balance and Indonesian rate of exchange in 1981-2002. The analysis method used is Granger causality method. Yet, before doing the Granger causality test, it was carried out data stationary test to avoid fake correlation. Stationary test shows that the data are not stationary so that it was made stationary by using one different level. The result of Granger causality analysis shows that it happen only one direction causality relation from the deficit of current account towards the rate of exchange because it has smaller counting F value then the determined a.

Fiscal Deficit and Inflation: What Causes What? The Case of India

2012 ◽  
Vol 13 (1) ◽  
pp. 57-81
Author(s):  
Aviral Kumar Tiwari ◽  
A. P. Tiwari ◽  
Bharti Pandey
Keyword(s):  
Granger Causality ◽  
Money Supply ◽  
Government Expenditure ◽  
Granger Causality Test ◽  
Fiscal Deficit ◽  
Causality Analysis ◽  
Causality Test

This study has made an attempt to examine the direction of causality among the fiscal deficit, government expenditure, money supply, and inflation. In the present study we have employed Dolado and L체tkepohl (DL) (1996) and standard Granger-causality approach to examine the direction of the causality among the test variables. However, we have found conflicting results for India. Causality analysis based on DL approach suggests that both government expenditure and money supply Granger-cause fiscal deficit while standard Granger-causality test indicates that only government expenditure Granger-cause fiscal deficit. And money supply Granger-cause government expenditure and fiscal deficit Granger-cause money supply.

scholarly journals Uncertainty Due to Infectious Diseases and Stock–Bond Correlation

Econometrics ◽  
2021 ◽  
Vol 9 (2) ◽  
pp. 17
Author(s):  
Konstantinos Gkillas ◽  
Christoforos Konstantatos ◽  
Costas Siriopoulos
Keyword(s):  
Neural Networks ◽  
Artificial Neural Networks ◽  
Infectious Diseases ◽  
Granger Causality ◽  
Predictive Value ◽  
High Frequency ◽  
Causal Relation ◽  
Granger Causality Test ◽  
Causality Test ◽  
Non Linear

We study the non-linear causal relation between uncertainty-due-to-infectious-diseases and stock–bond correlation. To this end, we use high-frequency 1-min data to compute daily realized measures of correlation and jumps, and then, we employ a nonlinear Granger causality test with the use of artificial neural networks so as to investigate the predictability of this type of uncertainty on realized stock–bond correlation and jumps. Our findings reveal that uncertainty-due-to-infectious-diseases has significant predictive value on the changes of the stock–bond relation.

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