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A Twin Deficit Hypothesis: The Case Study of Pakistan

Hammad Manzoor, Muhammad Zeeshan Younas (), Rashid Mehmood and Muhammad Ali Rizwan
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Hammad Manzoor: PIDE Islamabad Pakistan
Rashid Mehmood: COMSATS University Islamabad Pakistan
Muhammad Ali Rizwan: QAU Islamabad Pakistan

Bulletin of Business and Economics (BBE), 2019, vol. 8, issue 3, 117-131

Abstract: This paper analyses the twin deficit reaction function for Pakistan economy covering the period of 1973-2017. Empirical analysis is based on Vector Autoregressive (VAR) technique with its extension impulse response functions and Granger causality. Results show that the trade deficits directly cause the budget deficits and the budget deficit influences the trade deficit through different channels. The most familiar linkage is causality flowing from budget deficits to inflation to rate of interest to capital inflows to exchange rate (currency appreciation) and finally the trade deficits.

Keywords: Twin Deficit; VAR; Granger Causality; Impulse Response Function; Pakistan (search for similar items in EconPapers)
JEL-codes: E31 F6 O4 (search for similar items in EconPapers)
Date: 2019
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