Dynamics of fiscal and current account deficits in Thailand: an empirical investigation
Ahmad Zubaidi Baharumshah
Authors registered in the RePEc Author Service: Evan Lau
Journal of Economic Studies, 2007, vol. 34, issue 6, 454-475
Purpose - The purpose of this paper is to contribute further on the twin deficits debate in a developing economy. Design/methodology/approach - The data for Thailand over three decades are used as a case study. Findings - The major findings are: first, a stable, long-run equilibrium relationship between fiscal deficit, interest rate, exchange rate, and current account was found. Second, the causal relationship between the two deficits runs from fiscal deficit to current account deficit. This evidence is supportive of the twin deficits hypothesis. Further econometric analysis reveals that the two financial variables (interest rate and exchange rate) act as intermediating variables – that is an increased fiscal deficit causes interest rate to rise, and this in turn puts pressure on the exchange rate. The appreciation of the domestic currency causes a current account deficit. Originality/value - The paper is of value by showing both direct and indirect channels to uncover the twin deficits phenomena. Based on a persistent profile response, it was found that the adjustment process may take as long as a year to complete.
Keywords: Fiscal measures; Exchange rates; Interest rates; Thailand (search for similar items in EconPapers)
References: Add references at CitEc
Citations View citations in EconPapers (13) Track citations by RSS feed
Downloads: (external link)
http://www.emeraldinsight.com/10.1108/014435807108 ... RePEc&WT.mc_id=RePEc (text/html)
Access to full text is restricted to subscribers
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:eme:jespps:v:34:y:2007:i:6:p:454-475
Ordering information: This journal article can be ordered from
Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Access Statistics for this article
Journal of Economic Studies is currently edited by Professor Mohsen Bahmani-Oskooee
More articles in Journal of Economic Studies from Emerald Group Publishing
Series data maintained by Virginia Chapman ().