Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU
Economics Bulletin, Vol. 29, No. 2, pp. 1036-1043, 2009
Posted: 25 Oct 2009
There are 3 versions of this paper
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: May 17, 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 a panel-data approach 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
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