scholarly journals Fiscal Deficits, Current Account Deficits and Short Term Capital Inflow: The experience of Selected Emerging Market OECD Economies

2019 ◽  
Vol 14 (4) ◽  
pp. 287-298
Author(s):  
Rahman olanrewaju Raji
Keyword(s):  
Causal Relationship ◽  
Current Account ◽  
Current Account Deficit ◽  
Emerging Market ◽  
Capital Inflow ◽  
Annual Data ◽  
Fiscal Deficit ◽  
Short Term ◽  
Foreign Capital Inflows ◽  
The Current Account

     The purpose of this study is to find the causal relationship among fiscal deficit, current account deficit and short term capital inflow and also to determine further the validity of the twin deficit hypothesis. The empirical model is estimated for the selected ten emerging market OECD economies during the period between 2000 and 2016 using annual data. The findings show that there is short term and long term bi-directional causality among the current account deficit, the fiscal deficit and the short term capital inflow except a uni-directional causal relationship from short term capital inflow to current account deficit in the short run. This implies that short term foreign capital inflows is a source of financing means for the current account deficit, its economic consequence may lead to balance of payments problems due to adverse effects on current account and authorities should design a fully fiscal discipline policy that should ensure drastic curtailment of fiscal deficit and at the time create conducive environment to attract foreign remittances and also foreign investment which would help to generate healthy external balances

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 Testing the Validity of the Triple Deficit Hypothesis for Nigeria

2019 ◽  
Vol 4 (2) ◽  
pp. 89-109
Author(s):  
Rahman Olanrewaju Raji
Keyword(s):  
Causal Relationship ◽  
Current Account ◽  
Current Account Deficit ◽  
Fiscal Deficit ◽  
Discipline Policy ◽  
Export Sector ◽  
Long Run ◽  
Financial Account ◽  
Omission Bias ◽  
External Sector

This paper tests the validity of the triple deficit hypothesis in Nigeria by examining the causal relationship among current account deficit, financial account deficit, and fiscal deficit within a five-variate ARDL framework complemented with GMM framework for the period 2008-2017 using quarterly data. The paper obviates the variable omission bias that characterizes most existing studies. The ARDL-bound testing technique confirms that there is the presence of a long-run bi-causal relationship between current account and financial account deficits in Nigeria. The results based on the model and empirical outputs suggest that authorities of this economy must put in place a fully fiscal and monetary discipline policy that should ensure the drastic curtailment of fiscal deficit and create a conducive environment to attract foreign remittances and foreign investment, which would help to generate healthy external balances. In addition, exchange rate stability can promote the export sector and minimize external imbalances through creating critical surpluses in current accounts, including related comprehensive discipline policies that may be pursued, which enable the external sector, financial and fiscal sectors, and monetary sector to perform without creating adverse imbalances in this economy.

scholarly journals The effect of fiscal deficits on the external imbalances in the European Union

2020 ◽  
pp. 17-17
Author(s):  
Kosta Josifidis ◽  
Dragutinovic Mitrovic ◽  
Sladjana Bodor
Keyword(s):  
European Union ◽  
Current Account ◽  
Current Account Deficit ◽  
Fiscal Deficit ◽  
The European Union ◽  
External Imbalances ◽  
Econometric Methods ◽  
Long Run ◽  
The Impact ◽  
The Current Account

This paper analyzes the effect of the fiscal deficit on the current account deficit in the European Union during the period 1995-2018. The purpose is to examine to what extent an increase in government spending affects the deterioration of terms of trade and contributes to increasing external imbalances. Econometric methods for heterogeneous panel data models are used to analyse the existence of a long-run relationship between the fiscal deficit and the current account. The empirical findings indicate that the twin deficits hypothesis is not confirmed for the whole European Union, but only for a certain number of member states, where a long-run relationship still exists, confirming the impact of the fiscal deficit on the current account.

scholarly journals KONDISI MAKROEKONOMI SEBAGAI FAKTOR YANG MEMPENGARUHI NERACA TRANSAKSI BERJALAN PERIODE 1999-2016

2019 ◽  
Vol 11 (1) ◽  
pp. 87
Author(s):  
Erric Wijaya
Keyword(s):  
Exchange Rate ◽  
Current Account ◽  
National Income ◽  
Current Account Balance ◽  
Annual Data ◽  
Short Term ◽  
Macroeconomic Factors ◽  
Macroeconomic Variables ◽  
The Current Account

This study discusses the current account and itsinfluencing factors. The factors influencing the current account are macroeconomic factors, including national income (GDP), inflation, interest rate (SBI), and exchange rate.The period of this study starts from 1999 - 2016 using annual data. This study looks at the short-term and long-term effects of macroeconomic factors that affect the current account balance. The research model of this study was using cointegration test and Error Correction Model (ECM).The results showed that in the long run, the macroeconomic variables of national income (GDP) and inflation significantly influenced the current account balance. While in the short term, macroeconomic variables inflation and exchange rate significantly influenced the current account balance. Thusit can be concluded that, the inflation variable is the main macroeconomic variable that influenced the current account balance in the long term and in the short term. Keywords: current account, national income, SBI, inflation, exchange rate

‘Twin Deficits’ Hypothesis

2016 ◽  
Vol 52 (1) ◽  
pp. 15-29 ◽  
Author(s):  
Anantha Ramu M.R.
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
Positive Association ◽  
Correction Method ◽  
Structural Var ◽  
Annual Data ◽  
Fiscal Deficit ◽  
Twin Deficits ◽  
Indian Economy

Higher and persistent level of fiscal deficit and current account deficit is the problem of the day for Indian economy. There exists an argument that higher fiscal deficit is the major factor behind worsening balance of payments position. However, there is no identical perception on the relationship between fiscal deficit and current account deficit both theoretically and empirically. Hence this article is a revisit to the existing debate to see whether fiscal deficit and current account deficit can be called as ‘twin deficits’ pertaining mainly to Indian economy. Using long-term annual data for the period 1980–1981 to 2012–2013 on Indian economy and using vector error correction method, this article seeks to prove that there exists long-term positive association between fiscal deficit and current account deficit, and hence can be called as ‘twins’. Using structural VAR method it has been proved here that fiscal deficit is in line with the pattern illustrated in Keynesian absorption theory and Mundell–Fleming model in regard to its impact on current account deficit. This article negates the relevance of Ricardian equivalence theory in Indian context.

Protests present major challenges for Colombia’s Duque

2019 ◽  
Keyword(s):  
Economic Growth ◽  
Current Account ◽  
Current Account Deficit ◽  
Short Term ◽  
Social Unrest ◽  
Content Type ◽  
Approval Ratings ◽  
Growth Disruption ◽  
The Current Account

Significance Almost a month of protests against a range of perceived government failings is putting pressure on President Ivan Duque, already weakened by plunging approval ratings and his party’s loss of its legislative majority in October’s elections. His efforts to allay tensions have yet to bear fruit and fall far short of a list of 13 demands tabled by the National Strike Committee. Impacts Weaker exports will lead to an increase in the current account deficit. No changes to the policy rate are expected in the short term unless the economic growth disruption from social unrest worsens. Given the multitude of stakeholders and issues in dispute, protests will probably linger for the rest of Duque’s term.

scholarly journals Republic of Georgia

2019 ◽  
Vol 2019 (372) ◽  
Author(s):  
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
Food Prices ◽  
Gdp Growth ◽  
Fiscal Deficit ◽  
Republic Of Georgia ◽  
Revenue Growth ◽  
Capital Spending ◽  
National Bank ◽  
The Current Account

GDP growth remains on track to reach 4.6 percent despite the ban on direct flights from Russia. The current account deficit reached a historic low. Inflation accelerated to 6.9 percent in October reflecting higher food prices and nominal depreciation. The National Bank of Georgia used FX sales and higher policy rates to address rising inflationary pressures. Strong revenue growth has more than offset higher-than-envisaged capital spending, and the 2019 fiscal deficit is likely to be lower than projected at the Fourth Review.

scholarly journals Republic of Uzbekistan

2020 ◽  
Vol 20 (171) ◽  
Author(s):  
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
Fiscal Deficit ◽  
External Financing ◽  
The Impact ◽  
Domestic Impact ◽  
The Current Account

The COVID-19 pandemic has severely impacted Uzbekistan. Growth is projected to slow to 1.5 percent in 2020, while lower exports and remittances are expected to widen the current account deficit to almost 10 percent of GDP. Addressing the external shock and the domestic impact of COVID-19 is expected to require additional external financing of about US$ 4 billion (7 percent of GDP). At the same time, weaker than expected revenues and additional crisis-related expenditures are expected to widen the fiscal deficit from near balance to about 4 percent of GDP. Uncertainty about the severity and length of the global downturn and the impact on Uzbekistan’s economy is large.

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