Causality tests of budget and current account deficits: Cross-country comparisons

Khalid, Ahmed M.; Guan, Teo Wee

doi:10.1007/s001810050062

Cited by 93 publications

(80 citation statements)

References 21 publications

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“…The actual impact on the current account could vary depending on the dynamic adjustment path of the actual real exchange rate toward the equilibrium; large current account worsenings can obtain if the real exchange rate appreciates above its equilibrium level (overshooting). Khalid and Guan (1999) use cointegration techniques in selected countries and find that the empirical evidence does not support any long-run relationship between the current account deficit and the fiscal deficit for advanced economies, while the data for developing countries does not reject such a relationship. However, their results suggest a causal relationship between the fiscal and current account balances for most countries in their sample, running from the budget balance toward the current account balance.…”

Section: Long-term Correlations and Panel Regressionsmentioning

confidence: 89%

Fiscal Policy and the Current Account

et al. 2011

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This paper examines the relationship between fiscal policy and the current account, drawing on a large sample of advanced, emerging and low-income economies and using a variety of statistical methods: panel regressions, an analysis of large fiscal policy and current account changes, and panel vector auto-regressions. On average, a strengthening in the fiscal balance by 1 percentage point of GDP is associated with a current account improvement of 0.3-0.4 percentage point of GDP. This association appears stronger in emerging and low-income economies, or when the exchange rate is flexible; the economies are more open; output is above potential; initial debt levels are above 90 percent of GDP; and using methods robust to endogeneity issues. JEL Classification Numbers: E60, E61, E62, E65, C40, C01

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Section: Long-term Correlations and Panel Regressionsmentioning

confidence: 89%

Fiscal Policy and the Current Account

et al. 2011

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“…The large inflow of investment or debt accumulations affects the budgetary stance of a country and finally conducts to internal deficit. Investigations from Islam (1998), Anoruo and Ramchander (1998), Khalid and Guan (1999), Kim and Kim (2006) support the unidirectional of the link from external to internal deficits. Marinheiro's (2008) analysis has abandoned the double deficits hypothesis in maintaining of the transpose causality from external to internal deficits using the data from Egypt.…”

Section: Twin Deficits: Theoretical Framework and Empirical Literaturementioning

confidence: 80%

“…According to them, this will appear if the government of a country utilizes their budget (fiscal) stances to affect the external balance. This representation of external adjustment might be especially relevant for developing countries (Khalid & Guan, 1999).…”

Section: Twin Deficits: Theoretical Framework and Empirical Literaturementioning

confidence: 99%

Internal Deficit–External Deficit Nexus in Africa: 1960-2012

Tchouassi¹,

Ngwen²

2015

IJEF

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“…The articles by Kearney and Monadjemi (1990) on OECD countries, Anoruo and Ramchander (1998) on the Philippines, India, Indonesia and Korea and Khalid and Teo (1999) on Indonesia and Pakistan support this hypothesis. Recently, Alkswani (2000) reported the reverse causation between the two deficits for Saudi Arabia.…”

Section: Relevant Literaturementioning

confidence: 90%

“…Second, to the best of our knowledge, no previous work has attempted to address the twin deficits hypothesis for the ASEAN-4 countries, with the exception of Anoruo and Ramchander (1998) and Khalid and Teo (1999) 3 . This is surprising since the size of the current account deficits in these crisis-affected countries were large.…”

Section: Introductionmentioning

confidence: 99%

Testing Twin Deficits Hypothesis using VARs and Variance Decomposition

Baharumshah

Lau

Khalid

2006

Journal of the Asia Pacific Economy

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This paper examines the twin deficits hypothesis in Indonesia, Malaysia, the Philippines and Thailand (ASEAN-4 countries). The major findings of this paper are: (1) Long run relationships are detected between budget and current account deficits. (2) We found that the Keynesian reasoning fits well for Thailand since a unidirectional relationship exists which runs from budget deficit to current account deficit. For Indonesia the reverse causation (current account targeting) is detected while the empirical results indicate that a bidirectional pattern of causality exists for Malaysia and the Philippines. (3) We also found support for an indirect causal relationship that runs from budget deficit to higher interest rates, and higher interest rates lead to the appreciation of the exchange rate and this leads to the widening of current account deficit. (4) The results of the variance decompositions and impulse response functions suggest that the consequences of large budget and current account deficits become noticeable only over the long run.

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Causality tests of budget and current account deficits: Cross-country comparisons

Cited by 93 publications

References 21 publications

Fiscal Policy and the Current Account

Fiscal Policy and the Current Account

Internal Deficit–External Deficit Nexus in Africa: 1960-2012

Testing Twin Deficits Hypothesis using VARs and Variance Decomposition

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