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| Christophe Rault and António Afonso |
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| ''Bootstrap panel granger-causality between government budget and external deficits for the EU'' |
| ( 2009, Vol. 29 No.2 ) |
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| 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. |
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| 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 |
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| Manuscript Received : Feb 02 2009 | | Manuscript Accepted : May 17 2009 |
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