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Christophe Rault and António Afonso
 
''Bootstrap panel granger-causality between government budget and external deficits for the EU''
( 2009, Vol. 29 No.2 )
 
 
We investigate the existence of Granger-causality between current account and government budget balances over the period 1970-2007, for different EU and OECD country groupings. We use a panel-data approach based on SUR systems and Wald tests with country specific bootstrap critical values. Our results show a causal relation from budget deficits to current account deficits for several EU countries: Bulgaria, Czech Republic, Estonia, Finland, France, Italy, Hungary, Lithuania, Poland, and Slovakia, along the lines of the so-called twin-deficit relationship. Considering the effective real exchange rate in the SUR system does not substantially alter the results.
 
 
Keywords: panel causality tests, budget deficit, external imbalance, real exchange rates
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
F3 - International Finance: General
 
Manuscript Received : Feb 02 2009 Manuscript Accepted : May 17 2009

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