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General Equilibrium Perception on Twin Deficits Hypothesis: An Empirical Evidence for the U.S

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  • Tuck Cheong Tang
  • Evan Lau

Abstract

From the general equilibrium perceptive, this study proposes the inclusion of private savings and investments in examining twin deficits hypothesis. Using U.S. data, the empirical results support twin deficits hypothesis but the budget deficit’s elasticity is decreasing from unity to 0.43.

Suggested Citation

  • Tuck Cheong Tang & Evan Lau, 2009. "General Equilibrium Perception on Twin Deficits Hypothesis: An Empirical Evidence for the U.S," Monash Economics Working Papers 09-09, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2009-09
    as

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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2009/0909equilibriumtanglau.pdf
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    References listed on IDEAS

    as
    1. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
    2. Lori Leachman & Bill Francis, 2002. "Twin Deficits: Apparition or Reality?," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1121-1132.
    3. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    4. Michele Cavallo, 2005. "Understanding the twin deficits: new approaches, new results," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jul22.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Maria Panova, 2018. "Global aspects of the twin deficit hypothesis," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 99-116.
    2. Hammad Manzoor & Muhammad Zeeshan Younas & Rashid Mehmood & Muhammad Ali Rizwan, 2019. "A Twin Deficit Hypothesis: The Case Study of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 8(3), pages 117-131, September.

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    More about this item

    Keywords

    General Equilibrium; Government Budget Deficits; Current Account Balance; U.S.;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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