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General Equilibrium Perception on Twin Deficits Hypothesis: An Empirical Evidence for the U.S.

By Tuck Cheong Tang and Evan Lau

Abstract

From the general equilibrium perceptive, this study proposes the inclusion of private savings and investments in examining twin deficits hypothesis. Using U.S. data, the empirical results support twin deficits hypothesis but the budget deficit’s elasticity is decreasing from unity to 0.43.General Equilibrium; Government Budget Deficits; Current Account Balance; U.S.

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Citations

  1. (2005). Global current account imbalances exchange rate adjustments.
  2. (1988). Have Large Budget Deficits Caused Rising Trade Deficits?
  3. (1999). Numerical distribution functions of likelihood ratio tests for cointegration,
  4. (2002). Twin deficits: apparition or reality?
  5. (2005). Understanding the Twin Deficits: New Approaches, New Results,
  6. (1992). Why is the US current account deficit so large? Evidence from vector autoregressions.

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