Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU

Antonio Afonso and Christophe Rault

No 2581, CESifo Working Paper Series from CESifo

Abstract: We investigate the existence of Granger-causality between current account and government budget balances over the period 1970-2007, for different EU and OECD country groupings. We use the panel-data approach of Kónya (2006), which is based on SUR systems and Wald tests with country specific bootstrap critical values. Our results show a causal relation from budget deficits to current account deficits for several EU countries: Bulgaria, Czech Republic, Estonia, Finland, France, Italy, Hungary, Lithuania, Poland, and Slovakia, along the lines of the so-called twin-deficit relationship. Considering the effective real exchange rate in the SUR system does not substantially alter the results.

Keywords: panel causality tests; budget deficit; external imbalance; real exchange rates; EU; OECD (search for similar items in EconPapers)
JEL-codes: C23 E62 F32 H62 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Bootstrap panel granger-causality between government budget and external deficits for the EU (2009)
Working Paper: Bootstrap Panel Granger-Causality Between Government Budget and External Deficits for the EU (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2581

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