Do the twin deficits exist? some evidence for developed countries

Abstract

This paper examines the causal relationships between the fiscal deficit and the deficit in the current account of 11 developed countries. For this, the hypothesis of the Twin Deficits was analyzed from a theoretical and empirical perspective. Concerning the empirical analysis we have applied unit root and stationary tests to know if the data series were stationary, then we have analized the existence of cointegration between the budget balance and the current account balance and finally we have tested for Granger causality to formally find if the analyzed countries suffer from twin deficits or not. The results obtained showed us that only in the Netherlands, Portugal and Sweden the hypothesis of twin deficits is fulfilled.