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

Afonso, António; Rault, Christophe

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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

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)

There are 3 versions of this paper

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

Suggested Citation: Suggested Citation

Afonso, António and Rault, Christophe and Rault, Christophe, Bootstrap Panel Granger-Causality between Government Budget and External Deficits for the EU (May 17, 2009). Economics Bulletin, Vol. 29, No. 2, pp. 1036-1043, 2009, Available at SSRN: https://ssrn.com/abstract=1492527