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The Austrian current account deficit: Driven by twin deficits or by intertemporal expenditure allocation?

Sylvia Kaufmann (), Georg Winckler and Johann Scharler
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Georg Winckler: University of Vienna, Department of Economics, Hohenstaufengasse 9, A-1010 Vienna

Empirical Economics, 2002, vol. 27, issue 3, 529-542

Abstract: The evidence presented in the paper rejects the twin deficit hypothesis for the Austrian current account balance during the last two decades. The results are based on an estimate of a vector error correction model including quarterly data for the current account balance and potentially relevant variables driving its dynamics. We compute the variance decomposition of the current account's forecast error and its generalized impulse responses to shocks in the innovations of the system. The results in favor of intertemporal expenditure reallocation cannot be reproduced within a second analysis including the current account and a measure of net output, however. The estimated implicit current account balance, interpreted as the discounted expected change in future net output, does not follow the actual behaviour of the current account.

Keywords: current; account; ·; Mundell-Fleming; model; ·; Ricardian; equivalence; ·; vector; error; correction; and; vector; autoregression; ·; variance; decomposition; ·; impulse; response; analysis (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Date: 2002-04-26
Note: received: June 1999/Final version received: March 2001
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Working Paper: The Austrian current account deficit: Driven by twin deficits or by intertemporal expenditure allocation? (1999)
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