Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/213884
Authors: 
Breuer, Christian
Nam, Chang-woon
Year of Publication: 
2020
Series/Report no.: 
Chemnitz Economic Papers No. 035
Abstract: 
We apply a "new" conventional (CAPB-based) measure of fiscal policy, which is less prone to endogeneity issues, and find that a 1-percent of GDP fiscal consolidation leads to the improvement of the current account-to-GDP ratio by approximately 0.8 percent of GDP, while previous research based on conventional measures found a relationship of only 0.1-0.3 percentage points. We suggest that revious results based on conventional measures are biased towards underestimating the twin-deficit linkage because of endogeneity issues and the failure to adjust the CAPB for cyclical effects. After adjustment, the twin-deficit ffect is particularly pronounced in the case of expenditure cuts and in Eurozone countries. These findings are in line with previous evidence based on narrative measures.
Subjects: 
fiscal adjustment
current account
twin deficit
Eurozone countries
JEL: 
E62
E63
H50
Document Type: 
Working Paper

Files in This Item:
File
Size
593.17 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.