 On the relationship between the current account and the fiscal balance: The case of CanadaZuzana Janko The North American Journal of Economics and Finance, 2020, vol. 54, issue C Abstract: This paper uses an Autoregressive Distributed Lag model to examine the long run and short run relationship between the current account and the fiscal balance, as well as other determinants, using Canadian quarterly data from 1981 to 2018. The results indicate that there is a long-run cointegrating relationship between the current account and the fiscal balance, investment, and private credit. Moreover, the relationship between the current account and the fiscal balance is positive in the long-run, thus providing support for the Keynesian Hypothesis of the fiscal balance driving the current account. Specifically, a one percentage point rise in the fiscal balance to GDP ratio yields a 0.43 percentage point rise in the current account as a percent of GDP. This positive relationship is present in the short-run as well. Finally, the findings from the error correction model yield a speed of adjustment of 0.225, hence 22.5% of the long-run adjustment in the current account occurs next period. Keywords: Current account; Twin deficit; Time series ARDL modeling; Error-correction; Cointegration (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301388 DOI: 10.1016/j.najef.2020.101241 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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