The Relationship between Budget Deficits and Capital Inflows: Further Econometric Evidence
QUARTERLY REVIEW OF ECONOMICS AND FINANCE
Posted: 19 Sep 1996
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
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