Fiscal Policy and the Current Account
32 Pages Posted: 19 Jul 2010
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Fiscal Policy and the Current Account
Date Written: June 2010
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.
Keywords: current account, exchange rate, external imbalances, fiscal policy
JEL Classification: C01, C40, E60, E61, E62, E65
Suggested Citation: Suggested Citation
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