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Twin Deficits in European Transition Economies

Neo-Transitional Economics

ISBN: 978-1-78441-682-9, eISBN: 978-1-78441-681-2

ISSN: 1569-3767

Publication date: 4 March 2015

Abstract

Deficits in fiscal and current account balances in a large number of countries reveal interesting implications of the causal relationship between internal and external imbalances. Empirical evidence about the occurrence of so-called twin deficits or twin surpluses provides crucial information about the validity of an intertemporal approach. However, most recent dynamic cyclical changes during the crisis period revealed many questions about the direct interconnection between macroeconomic performance and twin imbalances. In the paper we observe substantial features of twin imbalances in European transition economies. Event study (identification of large fiscal and current account changes and their parallel occurrence) and vector auto-regression methods will be employed to examine key aspects of twin imbalances. Our results suggest that current account deteriorations were predominately associated with negative public investment and savings balances (fiscal deficits), while current account improvements were predominately associated with positive private investment and savings balances, confirming empirical evidence about twin deficits in European transition economies.

Keywords

Acknowledgements

Acknowledgment

This paper was written in connection with scientific project VEGA no. 1/0892/13. Financial support from the Ministry of Education’s scheme is also gratefully acknowledged.

Citation

Mirdala, R. (2015), "Twin Deficits in European Transition Economies", Neo-Transitional Economics (International Finance Review, Vol. 16), Emerald Group Publishing Limited, Bingley, pp. 299-333. https://doi.org/10.1108/S1569-376720150000016013

Publisher

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Emerald Group Publishing Limited

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