Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26626
Authors: 
Afonso, António
Rault, Christophe
Year of Publication: 
2009
Series/Report no.: 
CESifo working paper 2581
Abstract: 
We investigate the existence of Granger-causality between current account and government budget balances over the period 1970-2007, for different EU and OECD country groupings. We use the panel-data approach of Kónya (2006), which is based on SUR systems and Wald tests with country specific bootstrap critical values. Our results show a causal relation from budget deficits to current account deficits for several EU countries: Bulgaria, Czech Republic, Estonia, Finland, France, Italy, Hungary, Lithuania, Poland, and Slovakia, along the lines of the so-called twin-deficit relationship. Considering the effective real exchange rate in the SUR system does not substantially alter the results.
Subjects: 
Panel causality tests
budget deficit
external imbalance
real exchange rates
EU
OECD
JEL: 
C23
E62
F32
H62
Document Type: 
Working Paper

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