Current Account Deficit, Budget Deficit and Savings Gap: Is the Twin or Triplet Deficit Hypothesis Valid in G7 Countries?

Yusuf Ekrem Akbaş and Fuat Lebe

Prague Economic Papers, 2016, vol. 2016, issue 3, 271-286

Abstract: The purpose of this study is to determine the validity of the triplet deficit hypothesis, which means the savings gap and budget deficit effect on the current account deficit. The empirical model is estimated for the G7 countries during the period between 1994 and 2011. The findings show that budget deficit and savings gap have important role in current account deficit in terms of estimator results. Moreover, bi-directional causality between the current account deficit and the savings gap and between the budget deficit and the savings gap are determined. So, especially the savings gap has an important effect on the current account deficit and the budget deficit. That is, triplet deficit hypothesis is valid in G7. Moreover, traditional approach is also valid since the causality is found between the current account deficit and budget deficit. Thereby, the authors conclude that the choice of statistical tools in analysing the nature of relationship among the current account deficit, the budget deficit, and the savings gap may play a key role for policy makers.

Keywords: triplet deficit hypothesis; savings gap; panel dynamic SUR; current account deficit; budget deficit (search for similar items in EconPapers)
JEL-codes: C33 F32 F41 H62 O16 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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DOI: 10.18267/j.pep.565

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