Twin Deficits in Developing Economies

Author/Editor:

Davide Furceri ; Aleksandra Zdzienicka

Publication Date:

July 27, 2018

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper provides new evidence on the existence and magnitude of the “twin deficits” in developing economies. It finds that a one percent of GDP unanticipated increase in the government budget balance improves, on average, the current account balance by 0.8 percentage point of GDP. This effect is substantially larger than that obtained using standard measures of fiscal impulse, such as the cyclically-adjusted budget balance. The results point to heterogeneity across countries and over time. The effect tends to be larger: (i) during recessions; in countries (ii) that are more open to trade; (iii) that have less flexible exchange rate regimes; and (iv) with lower initial public debt-to-GDP ratios.

Series:

Working Paper No. 18/170

Subject:

English

Publication Date:

July 27, 2018

ISBN/ISSN:

9781484364000/1018-5941

Stock No:

WPIEA2018170

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

41

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