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Fiscal Balance and Current Account in Professional Forecasts

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  • Paolo Bianchi
  • Bruno Deschamps
  • Khurshid M. Kiani

Abstract

This paper investigates the relationship between financial institutions' expectations of the current account and the fiscal balance. Using professional macroeconomic forecasts for the G-7 countries, we find a positive relationship between forecasts of the cyclically adjusted fiscal balance deficit and forecasts of the current account deficit, indicating that professional forecasts embody links implied by the twin deficits hypothesis. In assessing the relationship between the forecasts of the fiscal deficit and the current account, we find that forecasters correctly make the distinction between the effect of fiscal policy and automatic stabilizers.

Suggested Citation

  • Paolo Bianchi & Bruno Deschamps & Khurshid M. Kiani, 2015. "Fiscal Balance and Current Account in Professional Forecasts," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 361-378, May.
    • Handle: RePEc:bla:reviec:v:23:y:2015:i:2:p:361-378
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    File URL: http://hdl.handle.net/10.1111/roie.12165
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    References listed on IDEAS

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    2. Paraskevi K. Salamaliki & Ioannis A. Venetis, 2024. "Fiscal Space and Policy Response to Financial Crises: Market Access and Deficit Concerns," Open Economies Review, Springer, vol. 35(2), pages 323-361, April.

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