Terms of Trade and Twin Deficits: Evidence for Argentina
DOI:
https://doi.org/10.35319/lajed.20152374Keywords:
twin deficits, terms of trade, VEC models, National Account base 1993, ArgentinaAbstract
This paper investigates the validity of the twin deficits hypothesis (fiscal and external), in the case of a small country like Argentina. Paper analyzes, through VEC models (error correction model), the long-run relationship between current account, budget deficit (or surplus), investment and terms of trade for the period 1993-2012. Results suggest that increases in the fiscal deficit and investment deteriorate current account balance. Moreover, fiscal balance anticipate (Granger causality) to the current account and investment, but not the reverse.
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