Comovements in budget deficits, money, interest rates, exchange rates and the current account balance: some empirical evidence

1996 ◽  
Vol 28 (1) ◽  
pp. 117-130 ◽  
Author(s):  
Salifu Baba Ibrahim ◽  
Francis Y. Kumah
Keyword(s):  
Exchange Rates ◽  
Interest Rates ◽  
Empirical Evidence ◽  
Current Account ◽  
Current Account Balance ◽  
Budget Deficits ◽  
The Current Account

What Explains Current Account Surplus in Korea?

2018 ◽  
Vol 17 (2) ◽  
pp. 70-93
Author(s):  
Chirok Han ◽  
Kwanho Shin
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Current Account ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Current Account Surplus ◽  
Short Run ◽  
The Right ◽  
The Impact ◽  
The Current Account

Since the currency crisis in 1998, Korea has experienced continuous current account surpluses. Recently, the current account surplus increased more rapidly—amounting to 7.7 percent of GDP in 2015. In this paper, we investigate the underlying reasons for the widening of Korea's current account surpluses. We find that the upward trend in Korea's current account surpluses is largely explained by its demographical changes. Other economic variables are only helpful when explaining short run fluctuations in current account balances. Moreover, we show that Korea's current account surplus is expected to disappear by 2042 as it becomes one of the most aged economies in the world. Demographic changes are so powerful that they explain, quite successfully, the current account balance trends of other economies with highly aged populations such as Japan, Germany, Italy, Finland, and Greece. When we add the real exchange rate as an additional explanatory variable, it is statistically significant with the right sign, but the magnitude explained by it is quite limited. For example, to reduce the current account surplus by 1 percentage point, a 12 percent depreciation is needed. If Korea's current exchange rate is undervalued 4 to 12 percent less than the level consistent with fundamentals, it is impossible to reduce Korea's current account surplus to a reasonable level by adjusting the exchange rate alone. Another way to reduce current account surplus is to expand fiscal policies. We find, however, that the impact of fiscal adjustments in reducing current account surplus is even more limited. According to our estimates, reducing the current account surplus by 1 percentage point requires an increase in budget deficits (as a ratio to GDP) of 5 to 6 percentage points. If we allow endogenous movements of exchange rate and fiscal policy, the impact of exchange rate adjustment increases by 1.6 times but that of fiscal policy decreases that it is no longer statistically significant.

scholarly journals Występowanie deficytów bliźniaczych w wybranych państwach Unii Europejskiej i w Polsce w latach 2009–2018

2021 ◽  
pp. 157-178
Author(s):  
Izabela , Piotr Cirin Zawiślińska ◽  
Piotr Cirin
Keyword(s):  
Current Account ◽  
Debt Crisis ◽  
Balance Of Payments ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Twin Deficits ◽  
State Budget ◽  
Main Research ◽  
Internal Balance ◽  
The Current Account

The aim of the article is to determine the degree, direction and strength of impact of the studied variables, i.e. the state budget balance and the current account balance as part of Poland's balance of payments in the years 2009-2018 against the background of selected European Union (EU) countries. The main research questions focus on determining the type of relationships connecting the studied deficits in the light of previous studies dedicated to the twin deficits hypothesis. The methodology used is based on integrated correlation analysis, linear regression and an analysis of the coefficient of variation. As a result of the study, a strong correlation was found between the cumulative values of the studied deficits, which confirms the existence of the twin deficits hypothesis in Poland in the examined period and means that the budget deficit affects the current account balance. A change in the cumulative balance of the budget by 1% leads to a change in the cumulative balance of the current account of the balance of payments by 0.89%. It can be presumed that the problem of budget deficits and the related debt crisis as well as balance of payments balances under the dichotomy of "surplus north" and "deficit south" in the next decade will be one of the most conflicting and disintegrative for the EU. Thus, the search for a path to budget (internal) balance and balance of payments (external) is one of the key challenges for maintaining cohesion and maintaining sustainable development both in Poland and the entire EU.

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 Current Account Balance in Emerging Asia

2021 ◽  
Vol 16 (1) ◽  
pp. 12-25
Author(s):  
Kivanç Halil Ariç ◽  
Siok Kun Sek ◽  
Miguel Rocha de Sousa
Keyword(s):  
Economic Growth ◽  
Interest Rates ◽  
Current Account ◽  
Causal Effect ◽  
Panel Data Analysis ◽  
Government Expenditure ◽  
Current Account Balance ◽  
Important Indicator ◽  
Long Run ◽  
The Current Account

Abstract The current account balance is an important indicator which reveals information on a country’s economic situation such as investments, capital flows, and indebtedness. The main purpose of this study is to examine the current account balance conditions in emerging Asian countries. In this respect, the long-run and causality relationship between current account balance, economic growth, government expenditure, real interest rates, and foreign direct investment was examined. The panel data analysis was applied using the data dated 1986 to 2015. Our results revealed a causal effect from economic growth and government expenditure to current account balance mainly dependent on saving tendency.

scholarly journals ANALISIS INTERDEPENDENSI NILAI TUKAR, INFLASI, PRODUK DOMESTIK BRUTO, SUKU BUNGA DAN NERACA TRANSAKSI BERJALAN DI INDONESIA

2020 ◽  
Vol 1 (3) ◽  
Author(s):  
Uline Afriany Prasetia Simarmata
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Current Account ◽  
Impulse Response Function ◽  
Secondary Data ◽  
Current Account Balance ◽  
Vector Autoregressive ◽  
Random Shock ◽  
The Current Account

Depreciation of the rupiah prompted Bank Indonesia raised SBI to strengthen the rupiah, inflation has a downward trend when the appreciation of the rupiah, and the movement of the exchange rate also change the position of the current account of Indonesia. This study aimed to determine the role and effects of changes in exchange rates, inflation, gross domestic product, interest rates and the current account balance for each variable. Data obtained from secondary data is exchange rate, inflation, GDP, interest rates and the current account data from 2000:1 up to 2010:4. The model used in this study is the econometric model by the method of Vector Autoregressive (VAR) that in their analysis the instrument has Impulse Response Function (IRF) and Variance Decomposition (VD). The results of this study concluded that (1) All variable giving each other random shock to other variables and response by each variable so as to achieve long-term equilibrium. This is shown on the estimation IRF test on each variable; (2) All variables are mutually contribute to other variables. It is shown by the results of estimation VD test, in which each variable contributed to other variables.

scholarly journals Implications of Intertemporal External Budget Deficits in Euroasian Countries

2015 ◽  
Author(s):  
Sabri Azgün
Keyword(s):  
Current Account ◽  
Balance Of Payments ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Current Account Deficits ◽  
Long Run ◽  
Equilibrium Relationship ◽  
To Come ◽  
Sustainable Economic Growth ◽  
The Current Account

Economies should pay attention to the deficits of the balance of payments in order to achieve a sustainable economic growth and development within the process of globalisation. A country having risks in terms of current account deficits can be evaluated as the current economic policy is having problems at present and will have in days to come in the point of sustainability. The sustainability of the current account deficits are defined by the intertemporal budget constraint. According to the budget constraints, the path of outlays to the external world with revenues obtained from abroad determines intertemporal solvency contidion. If there is no long-run equilibrium relationship between these two variables, intertemporal budget constaint will not be provided. The aim of this study is to determine whether it satisfies the intertemporal solvency condition of Euorasian economies for the period 2005Q1-2014Q4. In this study, by analyzing intertemporal externel budget consratint by unit root and cointegration methods, it is examined that carries potantieal risk in terms of the current account balance of Euroasian economies.

Sign in / Sign up

Export Citation Format

Share Document