Does economic cycle ingluence twin deficits in Europe? A threshold model.

Zobrazit minimální záznam Šuliková, Veronika 2018-04-18T12:09:15Z 2018-04-18T12:09:15Z 2018
dc.identifier.issn 1211-555X (Print)
dc.identifier.issn 1804-8048 (Online)
dc.description.abstract The aim of the paper is to test the impact of output gap on twin deficits existence in euro-area countries and three non-euro area countries (Sweden, Denmark and United Kingdom) over the time 1995 – 2015. The idea is motivated by the fact that certain European countries succeeded to adjust their current account deficits during recession and a principal motor of this adjustment was a decrease in their domestic demand. A panel data threshold model estimated two thresholds of output gap and divided the relation between budget balance and current account into three intervals. If an output gap is slightly negative or positive, the model confirms twin deficits, whereby a “twin relation” is stronger if an output is above its potential level. If an output is importantly below its potential level during recession, we conclude to twin divergence (e.g. in Greece, Portugal and Spain): even though a country increases its budget deficit during recession, it can succeed to adjust its current account deficit. We recommend taking into account an output gap when testing twin deficits as neglecting this effect could potentially lead to spurious rejection of twin deficit hypothesis. en
dc.language.iso en
dc.publisher Univerzita Pardubice cze
dc.relation.ispartof Scientific papers of the University of Pardubice. Series D, Faculty of Economics and Administration. 42/2018 en
dc.rights open access en
dc.subject twin deficits en
dc.subject twin divergence en
dc.subject output gap en
dc.subject current account en
dc.subject budget balance en
dc.subject threshold model en
dc.title Does economic cycle ingluence twin deficits in Europe? A threshold model. en
dc.type Article en
dc.peerreviewed yes en
dc.publicationstatus published en
dc.subject.jel E32
dc.subject.jel F32
dc.subject.jel F41
dc.subject.jel H62

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