Twin deficits in the G-7 countries and global structural imbalances

Salvatore, Dominick

doi:10.1016/j.jpolmod.2006.06.003

Cited by 104 publications

(87 citation statements)

References 15 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Under this model, the larger budget deficit is associated with a larger capital inflow and a current account deficit than originally, establishing a direct link between the budget deficit and the current account deficit. Based on these arguments, it is evident that the dynamic progression from budget deficits to higher interest rates, to appreciation of the domestic currency and, finally, to current account deficits are based on sound theoretical analysis (Salvatore, 2006). This is in line with the Keynesian preposition, which leads to testable hypotheses of twin deficits.…”

Section: Theoretical Underpinnings Of Twin Deficit Hypothesismentioning

confidence: 78%

“…3 Salvatore (2006) argues that Mundell-Fleming model can be used to analyse more explicitly the short-run dynamic relationship between budget and current account deficits for an open economy operating under a flexible exchange rate system. This analysis is based on the IS curve, which shows the various combinations of interest rates and national incomes at which the real goods market is in equilibrium, LM curve, which shows equilibrium in the money market and BP curve, which shows the various combinations of real interest rates and national incomes at which the nation's balance of payments is in equilibrium at a given exchange rate.…”

Section: Theoretical Underpinnings Of Twin Deficit Hypothesismentioning

confidence: 99%

“…According to open economy macroeconomics, a government budget deficit leads to a current account deficit and this phenomenon is termed the twin deficits hypothesis (TDH) (Salvatore, 2006). Accordingly, TDH contends that there is a strong positive relationship between a national economy's current account balance of the balance of payments (BOP) and government budget balance.…”

Section: Introductionmentioning

confidence: 99%

“…This raises the demand for the country's currency causing it to appreciate which would in turn make imports cheaper and exports more expensive relative to the prices of foreign goods. Hence, the appreciation of the domestic currency will lead to an increase in imports and ultimately in current account deficit (Leachman and Francis, 2002;Salvatore, 2006). In sum, a fiscal expansion, i.e., an increase in fiscal deficit raises output and thus imports creating a trade deficit and ultimately a current account imbalance with the appreciation of exchange rate (Blanchard and Sheen 2009).…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

An Empirical Investigation of the Twin Deficit Hypothesis: Evidence from Sri Lanka

Perera¹,

Liyanage²

2012

Staff Studies

View full text Add to dashboard Cite

show abstract

Section: Theoretical Underpinnings Of Twin Deficit Hypothesismentioning

confidence: 78%

Section: Theoretical Underpinnings Of Twin Deficit Hypothesismentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

An Empirical Investigation of the Twin Deficit Hypothesis: Evidence from Sri Lanka

Perera¹,

Liyanage²

2012

Staff Studies

View full text Add to dashboard Cite

show abstract

“…Especially, as suggested by Salvatore (2006), because the government deficit engenders an external balance deficit, Eurozone-periphery countries with large amounts of sovereign debt should dissolve their twin deficits through strict fiscal discipline, which will improve the IS balance.…”

Section: Lessons From the Asian Crisismentioning

confidence: 99%

Sudden stop and trade balance reversal after Asian crisis: Investment drought impact versus exchange rate depreciation

Yamamoto¹

2013

Journal of Policy Modeling

View full text Add to dashboard Cite

After the Asian crisis in 1997, the respective trade balances of Indonesia, Korea, Malaysia, and Thailand reversed suddenly from deficit to surplus. By particularly addressing the sudden cessation of investment caused by the financial crisis, it is demonstrated that the IS balance adjustment dominates real exchange rate depreciation, indicating that to reform the large external imbalance of Asian countries, which is a major component of global imbalance, policymakers should target domestic absorption. Furthermore, it can be demonstrated that the large trade balance surplus of Asian countries will decrease along with recovery. Finally, policy implications related to the recent Euro crisis are provided.JEL classification: F3, F31, F32, F44

show abstract

Assessing the (eco)macroeconomic performance index of India: A data envelopment analysis approach

Mohanty

Sahoo

Chaudhury

2020

Journal of Public Affairs

View full text Add to dashboard Cite

The prime objective of this article is to construct a robust macroeconomic performance (MEP) index of the Indian economy using the data envelopment analysis (DEA) approach. Seven major macro indicators, namely, economic growth, employment rate, terms of trade, inflation rate, fiscal deficit, pollution, and climate change are used to compute MEP and Eco‐MEP indices of the Indian economy from 1980–1981 to 2018–2019. Overall, both the MEP and Eco‐MEP index scores have quite similar best performing years worst performing years, and have also captured the major events that affected adversely the Indian economy during the past decades. The trend in the overall performance of the Indian economy was better in the 1980s and the 1990s but has deteriorated since 2000. The autoregressive distributed lag bounds testing approaches to cointegration methods are used to test the robustness/utility of these indices. The estimated results show that MEP and Eco‐MEP have a positive impact on private investment, foreign investment inflows, foreign direct investment, and a negative effect on the current account deficit. Hence, the suggested composite MEP index is stable, robust and truly captures the economic performance of India. The constructed MEP composite index may be used by foreign investors, rating agencies, private investors, and policymakers for their planning and decision‐making processes.

show abstract

Twin deficits in the G-7 countries and global structural imbalances

Cited by 104 publications

References 15 publications

An Empirical Investigation of the Twin Deficit Hypothesis: Evidence from Sri Lanka

An Empirical Investigation of the Twin Deficit Hypothesis: Evidence from Sri Lanka

Sudden stop and trade balance reversal after Asian crisis: Investment drought impact versus exchange rate depreciation

Assessing the (eco)macroeconomic performance index of India: A data envelopment analysis approach

Contact Info

Product

Resources

About