Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU

Antonio Afonso and Christophe Rault ()

No CESifo Working Paper No. 2581, CESifo Working Paper Series from CESifo Group Munich

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.

Keywords: panel causality tests; budget deficit; external imbalance; real exchange rates; EU; OECD (search for similar items in EconPapers)
JEL-codes: C23 E62 F32 H62 (search for similar items in EconPapers)
Date: 2009

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Working Paper: Bootstrap Panel Granger-Causality Between Government Budget and External Deficits for the EU (2009)
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