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Title: The dynamic linkages of fiscal and current account deficits: New evidence from five highly indebted European countries accounting for regime shifts and asymmetries
Authors: Trachanas, Emmanouil
Katrakilidis, Constantinos
Type: Article
Subjects: FRASCATI::Social sciences::Economics and Business::Economics
Keywords: Fiscal deficit
Current account deficit
Twin deficits
Structural breaks
Asymmetric cointegration
Issue Date: 2013
Source: Economic Modelling
Volume: 31
First Page: 502
Last Page: 510
Abstract: This article provides new empirical evidence on the long-term relationship between the fiscal and current account imbalances, of five European economies under financial market pressure and insolvency; Portugal, Ireland, Italy, Greece and Spain. We attempt to re-evaluate the dynamic linkages between the twin-deficits allowing for the presence of structural breaks and asymmetries. The evidence is in favor of the “twin deficits hypothesis”. More insight is further provided through the magnitude and significance of the asymmetric linkages between the twin deficits in the long-run time horizon. Our findings indicate that fiscal deficit decreases have a greater impact on the current account deficit rather than the opposite.
ISSN: 0264-9993
Other Identifiers: 10.1016/j.econmod.2012.12.026
Appears in Collections:Department of Accounting & Finance

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