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.

Asymmetric Effect of Fiscal Deficit on Current Account Deficit: Evidence from India

2021 ◽  
pp. 097226292110572
Author(s):  
Vishal Sharma ◽  
Masudul Hasan Adil ◽  
Sana Fatima ◽  
Ashok Mittal
Keyword(s):  
Current Account ◽  
Positive Impact ◽  
Current Account Deficit ◽  
Fiscal Deficit ◽  
Asymmetric Effect ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
Asymmetric Impact ◽  
The Impact

This study has attempted to re-investigate the impact of fiscal deficit (FD) on current account deficit (CAD) (also known as twin deficit hypothesis) in India from 1970–1971 to 2018–2019 in the presence of private saving–investment gap (SI) and exchange rate (EXR). For the empirical investigation, the study has employed the nonlinear autoregressive distributed lag (NARDL) approach to cointegration. The NARDL results found the evidence of an asymmetric effect of FD, SI and EXR on CAD in the long run only. The obtained results support the traditional views of the Keynesian approach that FD has a positive impact on CAD, validates the existence of the ‘Twin Deficit Hypothesis’ in India. Further, results also depict that SI has a positive effect on CAD, whereas EXR has an adverse impact on CAD. From a policy standpoint, the asymmetric impact of FD on CAD provides strong reasons for conceiving policies that are adaptable to changing dynamics in internal as well as external sectors.

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 Twin Deficit Hypothesis: Evidence from the Republic of North Macedonia

2020 ◽  
Vol 11 (3) ◽  
pp. 45-62
Author(s):  
Vesna Bucevska
Keyword(s):  
Current Account ◽  
Budget Deficit ◽  
Current Account Deficit ◽  
Point Of View ◽  
Special Importance ◽  
The European Union ◽  
Vector Autoregressive ◽  
Long Run ◽  
The Republic ◽  
The Current Account

AbstractBackgroundAn econometric analysis of the twin deficit hypothesis is of special importance for the Republic of North Macedonia in view of its perspective membership in the European Union and from the point of view of its macroeconomic stability in the long run.ObjectivesThe objective of this paper is to test empirically the validity of the twin deficit hypothesis in the Republic of North Macedonia.Methods/ApproachTo achieve this objective, we used actual quarterly data on Macedonia's budget and the current account deficit in the period from the first quarter of 2005 until the fourth quarter of 2017 and applied several econometrics methods: the Granger causality, a vector autoregressive (VAR) and a vector error correction model (VECM).ResultsThese findings point to the conclusion that efforts focused on improving the current account imbalances through fiscal policy will be inefficient in the short run.ConclusionsHowever, the existence of a long run relationship between the budget deficit and the current account deficit indicates the necessity of policy initiatives focused not only on reducing the budget deficit, but also on improving the external position of the country though export promotion.

Are IMF Stabilization Programs in the European Union Disastrous?

2020 ◽  
pp. 1-21
Author(s):  
Pantelis C. Kostis
Keyword(s):  
European Union ◽  
Current Account ◽  
Current Account Deficit ◽  
Economic Recession ◽  
The European Union ◽  
Long Run ◽  
Gdp Growth Rate ◽  
Time Period ◽  
Short Run ◽  
Binary Logistic Model

This chapter examines the effectiveness of Stabilizing Programs in the European Union for the time period from the Maastricht Treaty in 1993 to 2013 (the recent bailouts of Greece, Ireland, and Portugal). A binary logistic model is used which specifies binomial as the distribution and logit as the link function, using an unbalanced panel of annual data. Two main conclusions emerge: a) the probabilities of an economic recession, a high debt to GDP ratio, and a high current account deficit to GDP ratio, are greater when a Stabilization Program is adopted than without one, and b) a Stabilization Program has a negative short-run effect on the GDP growth rate, as well as negative long-run effects (8 years after the adoption) on the debt to GDP ratio and the current account deficit to GDP ratio.

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.

scholarly journals Structural and cyclical factors of Serbia’s current account

2018 ◽  
Vol 63 (217) ◽  
pp. 75-97 ◽  
Author(s):  
Radovan Kovacevic
Keyword(s):  
Current Account ◽  
Structural Changes ◽  
Current Account Deficit ◽  
Current Account Balance ◽  
Full Time ◽  
Structural Factors ◽  
Crisis Period ◽  
The Impact ◽  
The Current Account

This paper examines the impact of structural and cyclical factors on Serbia?s current account. We have applied several filters to turn off the long-term (structural) component and isolate the influence of cyclical factors. In this paper, we show that structural factors were more important determinants of the current account deficit in the full-time sample (1997-2016), while cyclical factors showed a stronger impact in the post-crisis period when the deficit was reduced. Although they lost their intensity during the crisis and in the post-crisis period, the structural factors determine the trend of the current account balance in the long-term. For further improvement of the current account, measures to increase exports should be taken. The structural changes of production, the wider range of support for export financing to small and medium-sized enterprises, and the application of advanced technologies in manufacturing could help to reduce the trade deficit, making the current account deficit sustainable.

scholarly journals Analysis of Current Account Deficit Determinants of Balance of Payments in Fixed and Flexible Exchange Rate Regimes: A Comparative Study in CFA Franc and Non-Franc Zones

2017 ◽  
Vol 3 (3) ◽  
pp. 447
Author(s):  
Remy Hounsou
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
Flexible Exchange Rate ◽  
Balance Of Payments ◽  
Current Account Balance ◽  
Domestic Saving ◽  
Franc Zone ◽  
Financial Variables ◽  
The Impact ◽  
The Current Account

<p><em>This study compares the impact of certain economic and financial variables on the level of the deficit in the current account of the balance of payments of the countries of the Franc zone and certain countries of the non-Franc zone situated south of the Sahara. The empirical results of the study based on panel data models covering the period 1990-2015 indicate that none of the two zones behaves better against the current account deficit of the balance of payments and that no zone is more competitive than the other. Finally, it was clear from our analysis that the variables of gross domestic, saving and the change in the terms of trade better explain the change in the current account balance in the Franc zone, whereas the variables of net foreign transfers and gross domestic saving impact the most the current account deficit in non-CFA zone.</em></p>

The Impact of Current Account Deficit on Economic Growth: An ARDL Approach

2020 ◽  
Vol 21 (1) ◽  
pp. 76-92
Author(s):  
Tamma Reddy ◽  
T. Sita Ramaiah
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Current Account ◽  
Unit Root ◽  
Current Account Deficit ◽  
External Debt ◽  
Unit Root Test ◽  
Output Growth ◽  
The Impact ◽  
The Current Account

In this study, we examine the linkages between External debt, Exchange rate, Current account deficit, and GDP at Factor cost for India over the period of 1975-76 to 2018- 19 using the Unit root test and Autoregressive Distributed Lag (ARDL). The results of the unit root test reveal that GDP growth rate and External debt are integrated at the level I(0); while the Current Account deficit and Exchange rate are integrated at first order I(1). The results of the ARDL technique reveal that the current account deficit has a positive and significant impact on Real GDP. It clearly reflects the role of imports in accelerating the growth of a developing economy like India. There is also evidence that the external debt has a positive and significant impact on the Current account deficit while the Exchange rate does not have an impact on the Current account deficit. The authors opine that the external debt assists in a gradual reduction in the current account deficit and contributes to economic growth by narrowing down the saving-investment gap. As the demand for Indian exports is inelastic in the global market, the country has not benefitted from the depreciation of its currency. The authors stressed the need for focusing on further diversification of its export markets, creating a conducive environment for attracting longer-term FDIs, liberalization, promoting commercial services exports, and achieving exchange rate stability in the context of the USA-China trade war and stagnation in the world output growth. Huge untapped potential for IT-enabled services should be exploited to promote service trade. The authors point out the current account deficit in the range of 2-3 percent of GDP can be manageable.

scholarly journals Sustainability of the Current Account Deficit in Kyrgyzstan

2017 ◽  
Author(s):  
Damira Baigonushova ◽  
Junus Ganiev ◽  
Nevin Aydın ◽  
Mairam Baigonusheva
Keyword(s):  
Current Account ◽  
Current Account Deficit ◽  
Foreign Debt ◽  
Trade Deficit ◽  
Foreign Direct Investments ◽  
Current Account Deficits ◽  
Long Run ◽  
Johansen Cointegration ◽  
Johansen Cointegration Test ◽  
The Current Account

Like most developing countries, current account deficit in Kyrgyzstan is one of the ongoing problems. The external dependency on both consumption and production goods and the lack of diversification of export goods, in other words, the formation of export from the unprocessed goods such as gold and some agricultural products further increase the risks in this area. So, in this study, it is aimed to investigate the sustainability of current account deficit in Kyrgyzstan and also its causes for 2000:1-2016:4 time periods. Time series causality, VAR-analysis approach and the Johansen cointegration methods have been used. When the relations between the current account deficits and the important sub-items of this account are examined, it is found out that the current account deficits are mostly affected by net exports and foreign debt interest payments. From a wider perspective, it has been found that the changes in current account deficit are mostly influenced by foreign direct investments. According to the Johansen cointegration test, there is no cointegration between export and import series, which is why Kyrgyzstan's foreign trade deficit is not sustainable. In the short term, the current account deficits, which are being carried out without any very important problems with the help of foreign workers' income, foreign debts and foreign direct investments, may become an important problem in the long run. To prevent this, there is a need for more active and more effective policies in the country to support real sectors that can compete with the rest of the world.

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