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A Structural VAR (SVAR) analysis of fiscal shocks on current accounts in India

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  • Suresh K.G.
  • Aviral Kumar Tiwari

Abstract

The stimulus packages announced to deal with the economic slowdown has increased the fiscal deficit of many countries and it spurred the debate on the possible effect of these fiscal shocks on other economic variable especially the current account. In this study, we examine the effect of fiscal deficit on current account of India using the VAR as well as the Structural VAR (SVAR) analysis. Our analysis indicates that the fiscal deficit is positively affecting the current account deficit in India, as predicted by the twin deficit hypothesis. Therefore, the historical data indicates the presence of the twin deficits phenomenon in Indian context.

Suggested Citation

  • Suresh K.G. & Aviral Kumar Tiwari, 2014. "A Structural VAR (SVAR) analysis of fiscal shocks on current accounts in India," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 7(1), pages 140-153, March.
    • Handle: RePEc:taf:macfem:v:7:y:2014:i:1:p:140-153
    DOI: 10.1080/17520843.2013.828764
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    Cited by:

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    3. Emerson JACKSON & Mohamed JABBIE, 2020. "Twin Deficits Hypothesis as an Indication of Government Failure in Sierra Leone: An Empirical Investigation (1980-2018)," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 7(1), pages 42-68, January.
    4. Mallick, Lingaraj & Behera, Smruti Ranjan & Murthy, R.V. Ramana, 2021. "Does the twin deficit hypothesis exist in India? Empirical evidence from an asymmetric non-linear cointegration approach," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    5. Sajad Ahmad Bhat & Bandi Kamaiah, 2021. "Fiscal policy and macroeconomic effects: structural macroeconometric model and simulation analysis," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 23(1), pages 81-105, June.
    6. Samia OMRANE BELGUITH, 2016. "Twin deficit in MENA countries: an empirical investigation," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(60), pages 123-146, June.

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