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Does fiscal policy matter for the trade account? A panel cointegration study

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  • Nickel, Christiane
  • Funke, Katja

Abstract

This paper analyses the empirical relationship between fiscal policy and the trade account. Research prior to this paper did not consider that the components of private and public demand in the import demand equation exhibit different elasticities. Using pooled mean group estimation for annual panel data of the G7 countries for the years 1970 through 2002, we provide empirical evidence that the composition of overall demand - i.e. the distribution among public demand, private demand and export demand - has an impact on the magnitude of the trade account deficit. JEL Classification: F32, E62, F41

Suggested Citation

  • Nickel, Christiane & Funke, Katja, 2006. "Does fiscal policy matter for the trade account? A panel cointegration study," Working Paper Series 620, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2006620
    Note: 166869
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp620.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yoichi Matsubayashi, 2010. "Budget Deficits and Current Account in Japan and the U.S.: An Empirical Evidence on the Twin Deficits Hypothesis," Discussion Papers 1010, Graduate School of Economics, Kobe University.
    2. Vansteenkiste, Isabel & Nickel, Christiane, 2008. "Fiscal policies, the current account and Ricardian equivalence," Working Paper Series 935, European Central Bank.
    3. Mariarosaria Comunale & Jeroen Hessel, 2014. "Current account imbalances in the Euro area: Competitiveness or financial cycle?," DNB Working Papers 443, Netherlands Central Bank, Research Department.
    4. Sadaf Majeed & Abdul Waheed, 2012. "Analyzing the Import Demand Function with Expenditure Components: Evidence from Pakistan," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 19(2), pages 245-259, November.
    5. António Afonso & Christophe Rault, 2008. "Budgetary and External Imbalances Relationship : a Panel Data Diagnostic," Working Papers Department of Economics 2008/45, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    6. Birendra Bahadur Budha, 2014. "The Role of Expenditure Components in Nepal’s Import from India," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 15(1), pages 37-54, March.
    7. Alfonso ARPAIA & Alessandro TURRINI, 2008. "Government Expenditure and Economic Growth in the EU: Long-Run Tendencies and Short-Term Adjustment," EcoMod2008 23800006, EcoMod.
    8. Mr. Alexander D Klemm, 2013. "Growth Following Investment and Consumption-Driven Current Account Crises," IMF Working Papers 2013/217, International Monetary Fund.
    9. Burcu KIRAN, 2011. "On The Twin Deficits Hypothesis: Evidence From Turkey," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(1).
    10. Jorge Silva, 2017. "Are external accounts sustainable in Portugal?," Working Papers REM 2017/21, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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    More about this item

    Keywords

    fiscal policy; panel cointegration; trade account; trade elasticities;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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