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The twin deficit hypothesis: the case of Bulgaria

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  • Gancho Todorov Ganchev

    (South-West University, Blagoevgrad)

Abstract

Recent developments in the Bulgarian economy bring into question the validity of the twin deficit hypothesis. This paper analyses the theoretical foundations of and alternative explanations for this hypothesis and uses different econometric approaches to test its validity on a sample of the Bulgarian data. A Granger causality test suggests the existence of dual causality between the fiscal and current account deficits. A vector autoregressive and a vector error correction model both reject the twin deficit hypothesis in the short run, but indicate that it might be valid in the long run.

Suggested Citation

  • Gancho Todorov Ganchev, 2010. "The twin deficit hypothesis: the case of Bulgaria," Financial Theory and Practice, Institute of Public Finance, vol. 34(4), pages 357-377.
    • Handle: RePEc:ipf:finteo:v:34:y:2010:i:4:p:357-377
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    References listed on IDEAS

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    Cited by:

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    5. Ivan Todorov & Mariana Usheva & Stoyan Tanchev & Petar Yurukov, 2020. "Does a discretionary policy or an automatic adjustment mechanism determine monetary conditions in Bulgaria?," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 95-114.
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    9. Tosun, M. Umur & Iyidogan, Pelin Varol & Telatar, Erdinç, 2014. "The Twin Deficits in Selected Central and Eastern European Economies: Bounds Testing Approach with Causality Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 141-160, June.
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