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Fiscal Policy and the Current AccountS. M. Ali AbbasInternational Monetary Fund (IMF) Jacques Bouhga-HagbeInternational Monetary Fund (IMF) - Middle East and Central Asia Department Antonio FatásINSEAD; Centre for Economic Policy Research (CEPR) Paolo MauroInternational Monetary Fund (IMF) Ricardo VellosoInternational Monetary Fund (IMF) June 2010 CEPR Discussion Paper No. DP7859 Abstract: This paper examines the relationship between fiscal policy and the current account, drawing on a larger country sample than in previous studies and using panel regressions, vector auto-regressions, and an analysis of large fiscal and external adjustments. On average, a strengthening in the fiscal balance by 1 percentage point of GDP is associated with a current account improvement of 0.20.3 percentage point of GDP. This association is as strong in emerging and low-income countries as it is in advanced economies; and significantly higher when output is above potential.
Number of Pages in PDF File: 32 Keywords: current account, exchange rate, external imbalances, fiscal policy JEL Classification: C01, C40, E60, E61, E62, E65 working papers seriesDate posted: July 19, 2010Suggested CitationContact Information
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