Causality between external balance and (some) fiscal variables: Preliminary results for the Eurozone

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Abstract

In this article, we present preliminary results, analyzing the causality between external balance and fiscal variables (primary public balance, interest paid on debt and overall public balance) within the so-called twin deficits hypothesis for a set of six Eurozone countries – three core countries (Austria, Finland and Germany) and three peripheral countries (Greece, Portugal and Spain) – in the period 1972–2011. We implement the Toda and Yamamoto (1995) approach to Granger non-causality testing (Granger, 1969). Results are not homogeneous for all the Eurozone countries included in the sample. Evidence of causality according to the twin deficits hypothesis is provided only for the case of Austria. In addition, evidence of a causal relationship from interest paid on debt to external balance is provided in the case of Portugal and from external balance to interest paid on debt for Austria and Germany.
Original languageEnglish
Pages (from-to)80-86
JournalEconomics and Business Letters
Volume5
Issue number3
Publication statusPublished - 2016

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