The Twin Deficits in Selected Central and Eastern European Economies: Bounds Testing Approach with Causality Analysis

M. Umur Tosun (), Pelin Varol Iyidogan () and Erdinc Telatar
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M. Umur Tosun: Department of Public Finance, Hacettepe University, Ankara, Turkey
Pelin Varol Iyidogan: Department of Public Finance, Hacettepe University, Ankara, Turkey

Journal for Economic Forecasting, 2014, issue 2, 141-160

Abstract: The aim of our paper is to explore empirically the existence of the long-run relationship and the direction of causality between the budget and current account deficits for some selected Central and Eastern European economies. Bulgaria, Latvia, Lithuania, Poland, Romania, Serbia and Slovenia are the sample countries. The empirical analysis hinges on the Pesaran, Shin, and Smith (2001) bounds testing approach to co-integration and Granger non-causality. No evidence in favor of twin deficits hypothesis has been obtained for the selected countries, except for Bulgaria, as the results support non-causality.

Keywords: budget deficit; current account deficit; twin deficits hypothesis; bounds testing; Granger non-causality (search for similar items in EconPapers)
JEL-codes: C32 F30 H62 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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