Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU
22 Pages Posted: 16 Mar 2009
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Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU
Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU
Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU
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: Suggested Citation
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