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

22 Pages Posted: 16 Mar 2009

See all articles by António Afonso

António Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa; REM - Research in Economics and Mathematics

Christophe Rault

IZA Institute of Labor Economics; University of Orleans; CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: March 1, 2009

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 Konya (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

JEL Classification: C23, E62, F32, H62

Suggested Citation

Afonso, António and Rault, Christophe and Rault, Christophe, Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU (March 1, 2009). CESifo Working Paper Series No. 2581, Available at SSRN: https://ssrn.com/abstract=1360638 or http://dx.doi.org/10.2139/ssrn.1360638

António Afonso

University of Lisbon - ISEG (School of Economics and Management) ( email )

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HOME PAGE: http://www.iseg.ulisboa.pt/aquila/homepage/aafonso/research

UECE (Research Unit on Complexity and Economics) ( email )

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ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

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REM - Research in Economics and Mathematics ( email )

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Portugal

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Christophe Rault (Contact Author)

IZA Institute of Labor Economics

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Germany

University of Orleans ( email )

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France

CESifo (Center for Economic Studies and Ifo Institute)

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