Twin Deficit Hypothesis and Feldstein-Horioka Hypothesis: Case Study of Indonesia

Anisha Wirasti and Tri Widodo ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper aims to empirically examine the Twin Deficit Hypothesis and Feldstein-Horioka Hypothesis in the case of Indonesia. The cointegration result shows that fiscal imbalances, investment and current account imbalances have a long run relationship. Autoregressive Distributed Lag (ARDL) and Autoregressive Distributed Lag-Error Correction Model (ARDL-ECM) approaches are applied to estimate the long run and short run relationships, respectively. The estimation results show that the fiscal imbalances have a positive impact on the current account imbalances in Indonesia. Meanwhile, investments have a negative impact on the current account. Those results indicate that Twin Deficit Hypothesis and Feldstein-Horioka Hypothesis hold in Indonesia.

Keywords: Twin Deficit Hypothesis; Feldstein-Horioka Hypothesis; ARDL; ECM. (search for similar items in EconPapers)
JEL-codes: F30 F32 F42 (search for similar items in EconPapers)
Date: 2017-03-11
New Economics Papers: this item is included in nep-opm and nep-sea
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Citations: View citations in EconPapers (1)

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