Are Budget and Current Account Deficits Twins in Turkey? Evidence from Residual-based Fourier Cointegration and Fourier Causality Analyses

Yıl 2021, , 199 - 215, 30.07.2021

Mustafa Erhan Bilman

https://doi.org/10.17233/sosyoekonomi.2021.03.10

Cited By: 3

Öz

This paper explores the relationship between the Turkish fiscal and current account balances with quarterly data spanning through 2006:1-2020:2 and adopting residual-based Fourier cointegration (or Fourier Engle-Granger, FEG) and Fourier Granger causality approaches. The findings from the FEG estimations suggest that budget and current account balances are cointegrated under smooth breaks in the series. More specifically, an improvement in the fiscal balance leads also to an amelioration in the current account balance - an outcome in line with the twin deficit hypothesis. In addition, a Fourier Granger causality analysis is performed for robustness check purposes. The findings are consistent with those from the FEG tests, which imply that a one-way causality running from the fiscal to the external balance is proved to be the case under smooth structural changes.

Anahtar Kelimeler

Twin Deficit Hypothesis, Residual-Based Fourier Cointegration, Fourier Granger Causality

Destekleyen Kurum

---

Proje Numarası

---

Teşekkür

---

Türkiye’de Bütçe ve Cari İşlemler Açıkları İkiz Mi? Kalıntı Temelli Fourier Eşbütünleşme ve Fourier Nedensellik Analizlerinden Kanıtlar

Öz

Bu çalışma, Türkiye’nin bütçe dengesi ile cari işlemler dengesi arasındaki ilişkiyi, 2006:1- 2020:2 dönemine ilişkin üç aylık verileri kullanarak ve kalıntı temelli Fourier eşbütünleşme (ya da Fourier Engle-Granger, FEG) ve Fourier Granger nedensellik yaklaşımlarını benimseyerek keşfetmektedir. FEG tahminlerinden elde edilen sonuçlar, bütçe ve cari işlemler dengesinin serilerdeki yumuşak yapısal kırılmalar altında eşbütünleşik olduğunu göstermektedir. Daha açık bir anlatımla; mali dengedeki bir iyileşme, cari işlemler dengesinde de bir düzelmeye neden olmaktadır ki; bu bulgu, ikiz açık hipotezinin geçerliliğini desteklemektedir. Sağlamlık (robustness) sınaması amacı güdülerek, bir Fourier Granger nedensellik analizi de yürütülmüştür. Ondan elde edilen bulgular ile FEG testinden elde edilenler tutarlıdır, şöyle ki; mali dengeden cari işlemler dengesine doğru tek yönlü bir nedensellik ilişkisinin varlığı, yumuşak yapısal değişimler altında tespit edilmiştir.

Anahtar Kelimeler

İkiz Açık Hipotezi, Kalıntı Temelli Fourier Eşbütünleşme, Fourier Granger Nedensellik

Proje Numarası

---

Kaynakça

• Abell, J.D. (1990), “Twin deficits during the 1980s: An empirical investigation”, Journal of Macroeconomics, 12(1), 81-96.
• Ahmad, A.H. & O.B. Aworinde & C. Martin (2015), “Threshold cointegration and the short-run dynamics of twin deficit hypothesis in African countries”, The Journal of Economic Asymmetries, 12, 80-91.
• Algieri, B. (2013), “An empirical analysis of the nexus between external balance and government budget balance: The case of the GIIPS countries”, Economic Systems, 37(2), 233-253.
• Andersen, P.S. (1990), “Developments in external and internal balances: A selective and eclectic view”, BIS Economic Papers, 29.
• Anoruo, E. & S. Ramchander (1998), “Current account and fiscal deficits: Evidence from five developing economies of Asia”, Journal of Asian Economics, 9(3), 487-501.
• Bachman, D.D. (1992), “Why is the US current account deficit so large? Evidence from vector autoregressions”, Southern Economic Journal, 59, 232-240.
• Bagnai, A. (2006), “Structural breaks and the twin deficits hypothesis”, International Economics and Economic Policy, 3,137-155.
• Banerjee, P. & V. Arčabić & H. Lee (2017), “Fourier ADL Cointegration Test to Approximate Smooth Breaks with New Evidence from Crude Oil Market”, Economic Modelling, 67, 114-124.
• Barro, R.J. (1974), “Are government bonds net wealth?”, Journal of Political Economy, 82(6), 1095-1117.
• Barro, R.J. (1989), “The Ricardian approach to budget deficits”, The Journal of Economic Perspectives, 3(2), 37-54.
• Baxter, M. & M.J. Crucini (1993), “Explaining saving-investment correlations”, The American Economic Review, 83(3), 416-436.
• Bilman, M.E. & S. Karaoğlan (2020), “Does the twin deficit hypothesis hold in the OECD countries under different real interest rate regimes?”, Journal of Policy Modeling, 42(1), 205-215.
• Cavallo, M. (2005), “Government consumption expenditures and the current account”, Federal Reserve Bank of San Francisco Working Paper Series, 2005-03.
• Daly, V. & J.U. Siddiki (2009), “The twin deficits in OECD countries: Cointegration analysis with regime shifts”, Applied Economics Letters, 16(11), 1155-1164.
• Darrat, A.F. (1988), “Have large budget deficits caused rising trade deficits?”, Southern Economic Journal, 54, 879-887.
• Dewald, W.G. & M. Ulan (1990), “The twin-deficit illusion”, CATO Journal, 9(3), 689-707.
• Dickey, D.A. & W.A. Fuller (1979), “Distribution of the estimators for autoregressive time series with a unit root”, Journal of the American Statistical Association, 74(366a), 427-431.
• Durlauf, S.N. & P.C. Phillips (1986), “Multiple Time Series Regression with Integrated Processes”, Review of Economic Studies, 53(4), 473-495.
• Enders, W. & B. Lee (1990), “Current account and budget deficits: Twins or distant cousins?”, Review of Economics and Statistics, 72, 373-381.
• Enders, W. & P. Jones (2016), “Grain prices, oil prices, and multiple smooth breaks in a VAR”, Studies in Nonlinear Dynamics & Econometrics, 20(4), 399-419.
• Engle, R.F. & C.W. Granger (1987), “Co-integration and error correction: Representation, estimation, and testing”, Econometrica, 55, 251-276.
• Feldstein, M. & C. Horioka (1980), “Domestic saving and international capital flows”, The Economic Journal, 90(358), 314-329.
• Feldstein, M. & P. Bacchetta (1989), “National Saving and International Investment”, National Bureau of Economic Research Working Paper, 3164.
• Feldstein, M. (1983), “Domestic Saving and International Capital Movement in the Long Run and the Short Run”, European Economic Review, 21, 129-151.
• Feldstein, M. (1992), “Analysis: The budget and trade deficits aren’t really twins”, Challenge, 35(2), 60-63.
• Frankel, J.A. & A.T. MacArthur (1988), “Political vs. currency premia in international real interest differentials: A study of forward rates for 24 countries”, European Economic Review, 32(5), 1083-1114.
• Frankel, J.A. (1991), “Quantifying international capital mobility in the 1980s”, in: National saving and economic performance, University of Chicago Press, 227-270.
• Gallant, A.R. (1981), “On the Bias in Flexible Functional Forms and an Essentially Unbiased Form: The Fourier Flexible Form”, Journal of Econometrics, 15(2), 211-245.
• Gordon, R.J. (1986), “U.S. fiscal deficits and the world imbalance of payments”, Hitotsubashi Journal of Economics, 27, 7-41.
• Granger, C.W. (1969), “Investigating causal relations by econometric models and cross-spectral methods”, Econometrica, 37(3), 424-438.
• Granger, C.W.J. & P. Newbold (1974), “Spurious regressions in econometrics”, Journal of Econometrics, 2(2), 111-120.
• Granger, C.W.J. (1986), “Developments in the study of cointegrated economic variables”, Oxford Bulletin of Economics and Statistics, 48, 213-228.
• Gregory, A.W. & B.E. Hansen (1996), “Residual-based tests for cointegration in models with regime shifts”, Journal of Econometrics, 70(1), 99-126.
• Hatemi-J, A. (2008), “Tests for cointegration with two unknown regime shifts with an application to financial market integration”, Empirical Economics, 35(3), 497-505.
• Helliwell, J.F. (1990), “Fiscal policy and the external deficit: Siblings, but not twins”, NBER Working Paper Series, (3313), 1-26.
• Hendry, D.F. (1986), “Econometric modelling with cointegrated variables: An overview”, Oxford Bulletin of Economics and Statistics, 48(3), 201-212.
• Holmes, M.J. (2011), “Threshold cointegration and the short-run dynamics of twin deficit behaviour”, Research in Economics, 65(3), 271-277.
• Kasa, K. (1994), “Finite horizons and the twin deficits”, Economic Review, Federal Reserve Bank of San Francisco, 3, 19-28.
• Kaufmann, S. & J. Scharler & G. Winckler (2002), “The Austrian current account deficit: Driven by twin deficits or by intertemporal expenditure allocation?”, Empirical Economics, 27, 529-542.
• Khalid, A.M. & T.W. Guan (1999), “Causality tests of budget and current account deficits: Cross-country comparisons”, Empirical Economics, 24(3), 389-402.
• Kim, C.H. & D. Kim (2006), “Does Korea have twin deficits?”, Applied Economics Letters, 13(10), 675-680.
• Kim, K.H. (1995), “On the long-run determinants of the US trade balance: A comment”, Journal of Post Keynesian Economics, 17(3), 447-455.
• Kim, S. & N. Roubini (2008), “Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S.”, Journal of International Economics, 74, 362-383.
• Laney, L.O. (1984), “The strong dollar, the current account, and federal deficits: Cause and effect”, Economic Review, Federal Reserve Bank of Dallas, 1-14.
• Levy, D. (2000), “Investment-saving comovement and capital mobility: Evidence from century long US time series”, Review of Economic Dynamics, 3(1), 100-136.
• Marinheiro, C.F. (2008), “Ricardian equivalence, twin deficits, and the Feldstein-Horioka puzzle in Egypt”, Journal of Policy Modeling, 30(6), 1041-1056.
• Masih, R. & A.M. Masih (1996), “Stock-Watson dynamic OLS (DOLS) and error-correction modelling approaches to estimating long- and short-run elasticities in a demand function: New evidence and methodological implications from an application to the demand for coal in mainland China”, Energy Economics, 18(4), 315-334.
• McKinnon, R.I. (1980), “Exchange-Rate Instability, Trade Imbalances, and Monetary Policies in Japan and the United States”, in: P. Oppenheimer (ed.), Issues in International Economics Ch. 12, Oriel Press, 225-250.
• McKinnon, R.I. (1990), “The exchange rate and the trade balance”, Open Economies Review, 1(1), 17-37.
• Miller, S.M. & F.S. Russek (1989), “Are the twin deficits really related?”, Contemporary Economic Policy, 7(4), 91-115.
• Murphy, R.G. (1984), “Capital Mobility and Relationship between Saving and Interest Rates in OECD Countries”, Journal of International Money and Finance, 3, 327-342.
• Normandin, M. (1999), “Budget deficit persistence and the twin deficits hypothesis”, Journal of International Economics, 49(1), 171-193.
• Obstfeld, M. & K. Rogoff (2000), “Perspectives on OECD economic integration: Implications for US current account adjustment”, in: Global Economic Integration: Opportunities and Challenges, 169-208.
• Obstfeld, M. (1986), “How integrated are world capital markets? Some new tests”, No. w2075, Working Paper, National Bureau of Economic Research.
• Phillips, P.C. & M. Loretan (1991), “Estimating long-run economic equilibria”, The Review of Economic Studies, 58(3), 407-436.
• Phillips, P.C. (1986), “Understanding Spurious Regressions in Econometrics”, Journal of Econometrics, 33(3), 311-340.
• Piersanti, G. (2000), “Current account dynamics and expected future budget deficits: Some international evidence”, Journal of International Money and Finance, 19(2), 255-271.
• Rafiq, S. (2010), “Fiscal stance, the current account and the real exchange rate: Some empirical estimates from a time-varying framework”, Structural Change and Economic Dynamics, 21, 276-290.
• Saikkonen, P. (1991), “Asymptotically efficient estimation of cointegration regressions”, Econometric Theory, 7(1), 1-21.
• Salvatore, D. (2006), “Twin deficits in the G-7 countries and global structural imbalances”, Journal of Policy Modeling, 28, 701-712.
• Stiglitz, J.E. (2010), Freefall: America, free markets, and the sinking of the world economy, WW Norton & Company.
• Stock, J.H. & M.W. Watson (1993), “A simple estimator of cointegrating vectors in higher order integrated systems”, Econometrica, 61(4), 783-820.
• Summers, L.H. (1986), “Debt problems and macroeconomic policies”, NBER Working Paper Series, No. w2061.
• Summers, L.H. (1988), “Tax policy and international competitiveness”, in: International Aspects of Fiscal Policies, University of Chicago Press, 349-386.
• Tobin, J. (1983), “Domestic Saving and International Capital Movements in the Long Run and the Short Run by M. Feldstein: Comment”, European Economic Review, 21, 153-156.
• Trachanas, E. & C. Katrakilidis (2013), “The dynamic linkages of fiscal and current account deficits: New evidence from five highly indebted European countries accounting for regime shifts and asymmetries”, Economic Modelling, 31, 502-510.
• Tsong, C.C. et al. (2016), “The Fourier Approximation and Testing for the Null of Cointegration”, Empirical Economics, 51(3), 1085-1113.
• Vamvoukas, G.A. (1999), “The twin deficits phenomenon: Evidence from Greece”, Applied Economics, 31(9), 1093-1100.
• Yılancı, V. (2019), “A Residual-Based Cointegration test with a Fourier Approximation”, MPRA Paper No. 95395.
• Yule, G.U. (1926), “Why Do We Sometimes Get Nonsense Correlations between Time-Series? A Study in Sampling and the Nature of Time Series”, Journal of the Royal Statistical Society, 89(1), 1-63.
• Zietiz, J. & D.K. Pemberton (1990), “The US budget and trade deficits: A simultaneous equation model”, Southern Economic Journal, 57, 23-34.