The Relationship between Budget Deficits and Capital Inflows: Further Econometric Evidence

QUARTERLY REVIEW OF ECONOMICS AND FINANCE

Posted: 19 Sep 1996

See all articles by N.R. Vasudeva Murthy

N.R. Vasudeva Murthy

Creighton University

Joseph M. Phillips

Seattle University - Albers School of Business and Economics

Abstract

This research note examines the impact of federal deficits on U.S. capital inflows. Expanding on the previous work of Bahamani-Oskooee and Payesteh (1994), we employ the relatively new maximum likelihood procedure developed by Johansen (1988) and Johansen and Juselius (1990) to do cointegration tests. The results find a long run relationship between budget deficits and capital inflows. In addition, findings from error-correlation modeling reveal that short-run disequilibria in financial markets are corrected very rapidly, suggesting that these markets are efficient.

JEL Classification: F32, F4, G15

Suggested Citation

Murthy, N.R. Vasudeva and Phillips, Joseph M., The Relationship between Budget Deficits and Capital Inflows: Further Econometric Evidence. QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Available at SSRN: https://ssrn.com/abstract=4232

N.R. Vasudeva Murthy (Contact Author)

Creighton University ( email )

2500 California Plaza
Omaha, NE 68178
United States
402-280-2612 (Phone)
402-280-2172 (Fax)

Joseph M. Phillips

Seattle University - Albers School of Business and Economics ( email )

901 12th Avenue
Seattle, WA 98122
United States

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