Twin Deficits through the Looking Glass: Time-Varying Analysis in the Euro Area

Antonio Afonso and José Coelho

No 2022/0211, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Using two measures of the fiscal position, the cyclically adjusted primary budget balance (CAPB) and the total budget balance, we assess the Twin Deficit Hypothesis for the Euro Area in the period 1995-2020. Furthermore, we estimate time-varying coefficients of the current account balance responses to changes in the CAPB and in the government balance and we identify the determinants of these responses. The CAPB and the government balance, in addition to being determinants of the current account balance, are also determinants of the time-varying responses of the current account balance. The levels of government balance, current account balance and public debt, as a percentage of GDP, and the temporal period (before and after 2010) also influence these responses.

Keywords: CAPB; government balance; current account balance; time-varying coefficients; Eurozone; panel data. (search for similar items in EconPapers)
JEL-codes: C33 F32 F41 H62 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-eec and nep-opm
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Related works:
Journal Article: Twin deficits through the looking glass: time-varying analysis in the Euro area (2023)
Working Paper: Twin Deficits through the Looking Glass: Time-Varying Analysis in the Euro Area (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp02112022

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