Twin Deficits Through the Looking Glass: Time-Varying Analysis in the Euro Area

28 Pages Posted: 10 Feb 2022

See all articles by António Afonso

António Afonso

ISEG Lisbon School of Economics and Management,Universidade de Lisboa; UECE (Research Unit on Complexity and Economics); REM - Research in Economics and Mathematics

José Carlos Coelho

ISEG Lisbon School of Economics and Management,Universidade de Lisboa

Multiple version iconThere are 2 versions of this paper

Date Written: 2022

Abstract

Using two measures of the fiscal position, the cyclically adjusted primary budget balance (CAPB) and the total budget balance, we assess the Twin Deficit Hypothesis for the Euro Area in the period 1995-2020. Furthermore, we estimate time-varying coefficients of the current account balance responses to changes in the CAPB and in the government balance and we identify the determinants of these responses. The CAPB and the government balance, in addition to being determinants of the current account balance, are also determinants of the time-varying responses of the current account balance. The levels of government balance, current account balance and public debt, as a percentage of GDP, and the temporal period (before and after 2010) also influence these responses.

Keywords: CAPB, government balance, current account balance, time-varying coefficients, Eurozone, panel data

JEL Classification: F320, F410, H620, C330

Suggested Citation

Afonso, António and Coelho, José Carlos, Twin Deficits Through the Looking Glass: Time-Varying Analysis in the Euro Area (2022). CESifo Working Paper No. 9559, Available at SSRN: https://ssrn.com/abstract=4031197 or http://dx.doi.org/10.2139/ssrn.4031197

António Afonso (Contact Author)

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

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Portugal

HOME PAGE: http://https://www.iseg.ulisboa.pt/

UECE (Research Unit on Complexity and Economics) ( email )

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HOME PAGE: http://uece.rc.iseg.ulisboa.pt/

REM - Research in Economics and Mathematics ( email )

ISEG, Universidade de Lisboa
Rua Miguel Lupi, 20
Lisboa, 1249-078
Portugal

HOME PAGE: http://rem.rc.iseg.ulisboa.pt/

José Carlos Coelho

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

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