Re-examining the "twin deficits" hypothesis: evidence from Australia

Narayan, Paresh and Makin, Anthony 2013, Re-examining the "twin deficits" hypothesis: evidence from Australia, Empirical economics, vol. 45, no. 2, pp. 817-829.

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Title Re-examining the "twin deficits" hypothesis: evidence from Australia
Author(s) Narayan, Paresh
Makin, Anthony
Journal name Empirical economics
Volume number 45
Issue number 2
Start page 817
End page 829
Total pages 13
Publisher Springer
Place of publication Heidelberg , Germany
Publication date 2013
ISSN 0377-7332
1435-8921
Keyword(s) fiscal imbalances
twin deficits
Australia
Summary This paper re-examines the relationship between fiscal imbalances and net foreign borrowing. A general analytical approach is first developed which suggests that, other things equal, a rise (fall) in any advanced economy’s fiscal deficit should be fully matched by a rise (fall) in its net foreign borrowing, in accordance with the so-called twin deficits hypothesis. In the case of Australia, one of the world’s largest foreign borrower economies for its size, empirical estimation yields the novel result that Australia’s consolidated budget imbalance and its foreign borrowing were approximately twinned on the basis of quarterly data for 1983–2009, when Australia’s exchange rate floated and international capital mobility was high. This result is consistent with the conceptual framework and suggests that fiscal policy is likely to be ineffective as an instrument for influencing the real economy.
Language eng
Field of Research 150202 Financial Econometrics
Socio Economic Objective 910104 Exchange Rates
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2013
Copyright notice ©2013, Springer
Persistent URL http://hdl.handle.net/10536/DRO/DU:30057294

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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