An Investigation of Twin Deficit Hypothesis in Iran: Two Regimes Threshold Vector Autoregressive Approach

Document Type : Research Paper

Authors

1 Professor of Agricultural Economics, Ferdowsi University of Mashhad

2 Ph.D student of Agricultural Economics, Ferdowsi University of Mashhad

Abstract

One of the most important economic problems of many developing countries is happening of the budget deficit and the current account deficit at the same time, that have adverse effects on performance of various sectors of the economy. In this study the twin deficit hypothesis in Iran was tested. For this purpose nonlinear relationship between budget deficit and current account deficit in the period of 1971-2012 was reviewed. At first, the stationary of time series variables examined. Then Johansen co-integration test was performed. There was a co-integration vector between budget deficit and current account deficit. The causality test in a frame of a vector autoregressive model showed a bi-directional causal relationship between the variables. Then the non-linearity test was performed and after confirmation of non-linearity, two regimes threshold vector autoregressive model was estimated. Also the unit root test of non-linear models (KS) was applied. The results showed that the current account deficit in the short run will be affected by budget deficit and current account deficit increase with the increasing of the budget deficit. But in the long run, these two variables are treated as independent together.

Keywords


  1.  

    1. برانسون، ویلیام اچ ( 1376). تئوری و سیاست‌های اقتصاد کلان. عباس شاکری، تهران، نشر نی.

    2. بانک مرکزی جمهوری اسلامی ایران (1393). بانک اطلاعات سری‌های زمانی اقتصادی. قابل دسترس در وب‌سایت: http://www.cbi.ir

    3. زوارئیان، منصوره (1391). مطالعه رابطه بین کسری بودجه دولت و حساب جاری در اقتصاد ایران در دوره 1385-1342. فصلنامه پژوهشنامه بازرگانی، 62، 221-193.

    4. صفدری، مهدی، و پورشهابی، فرشید (1388). اثر کسری بودجه دولت بر کسری تجاری در اقتصاد ایران، با استفاده از روش ARDLطی سال‌های 1386-1345. مجله اقتصادی- ماهنامه بررسی مسائل و سیاست‌های اقتصادی، 93 و 94، 50-35.

    5. عظیمی، سید امیر، و نوفرستی، محمد (1394). بررسی رابطه بین کسری بودجه دولت و تراز تجاری در ایران در چارچوب یک الگوی اقتصادسنجی کلان ساختاری پویا. فصلنامه پژوهشهای اقتصادی، 15(2)، 156-137.

    6. قطمیری، محمد‌علی، و صمدی، علی حسین ( 1374). بررسی رابطه بین کسری بودجه دولت و تراز تجاری در اقتصاد ایران. رساله کارشناسی ارشد، دانشگاه شیراز.

    7. محمدی، حسن ( 1373). سیاست مالی و تراز تجاری (بررسی تجربه اقتصاد ایران). مقاله ارائه شده در کنفرانس ماهانه موسسه تحقیقات پولی و بانکی، 62-48.

    8. محمدی، حسین، و توحیدی، امیرحسین (1392). بررسی تجربی ارتباط کسری حساب جاری و کسری بودجه­ی دولت در ایران و منتخبی از کشورهای در حال توسعه. فصلنامه اقتصاد مقداری، 10(1)، 129-105.

     

     

     

     

    1. Adinevand, M. (2015). Effect of budget deficit on production, inflation and trade balance of Iran-Based on the synchronous equations model. Bulletin of the Georgian National Academy of Sciences, 9(1).

    2. Aworinde, O.B. (2013). Budget deficit and economic performance. A Ph. D thesis, University of Bath, Department of Economics.

    3. Barro, R. J. (1974). Are government bonds net wealth?. Journal of Political Economy, 82, 1095-1117.

    4. Bartolini, L., and Labiri, A. (2006). Twin deficits, twenty years later. Current Issues in Economics and Finance, 12(7), 1-7.

    5. Cavallo, M. (2005). Government consumption expenditures and the current account. FRBSF Working Paper.

    6. Deniz, P., and Celik, S. (2009). An empirical investigation of twin deficit hypothesis for six emerging countries. Available at http://dx.doi.org/10.2139/ssrn.

    7. Holmes, M. J. (2011). Threshold co-integration and the short-run dynamics of twin deficit behavior. Research in Economics, 65(3), 271–277.

    8. Johansen, S., and Juselius, K. (1990), Maximum likelihood estimation and inference on co-integration with application to the demand for money. Oxford Bulletin of Economics and Statistics, 52, 169-210.

    9. Kalou, S., & Paleologou, S.M. (2012). The twin deficits hypothesis:Revisiting an EMU country. Journal of Policy Modeling, 34(2), 230-241.

    10. Kapetanios, G., Shin, Y., and Snell, A. (2003). Testing for co-integration in nonlinear STAR error correction models. School of Economics, and University of Edinburgh.

    11. Kiran, B. (2011). On the twin deficits hypothesis: evidence from turkey. Applied Econometrics and International Development, 11.

    12. Kouassi, E., Mougou´e, M., & Kymn, K. O. (2004). Causality tests of therelationship between the twin deficits. EmpiricalEconomics, 29, 503–525.

    13. Lau, E., Abu Mansor, S., and Puah, C.H. (2010). Revival of the twin deficits in Asian crisis affected countries. Economic Issues, 15(1), 29-53.

    14. Lo C and Zivot, E. (2001). Threshold co-integration and nonlinear adjustment to thelaw of one price. Macroeconomic Dynamics, 5, 533-576.

    15. Makin, A. J., and Narayan, P. (2013). Re-examining the “twin deficits” hypothesis: evidence from Australia. Empirical Economics, 45(2), 817-829.

    16. Marinheiro, C.F. (2008). Ricardian equivalence, twin deficits, and theFeldstein–Horioka puzzle in Egypt. Journal of Policy Modeling, 30(6),1041-1056.

    17. Miller, S. M., and Russek, F.S. (1989). Are the twin deficits really related? Contemporary Policy Issues, 7(4), 91-115.

    18. Neaime, S. (2015). Twin deficits and sustainability of public debt and exchange rate policies in Lebanon. Research in International Business and Finance, 33, 127-143.

    19. Nickel, C., and Vansteenkiste, I. (2008). Fiscal policies, the current account and Ricardian equivalence. Working Paper, 935, European Central Bank.

    20. Njoroge, E.K. (2014). Testing twin deficit hypothesis for Kenya 1970-2012. International Journal of Business and Economics Research, 3(5), 160-169.

    21. Papadogonas, T., & Stournaras, T. (2006). Twin deficits and financial integration in EU member-states. Journal of Policy Modeling, 28(5), 595-602.

    22. Pragidis, I., Gogas, P., Plakandaras, V., & Papadimitriou, T. (2015). Fiscal shocks and asymmetric effects: a comparative analysis. The Journal of Economic Asymmetries, 12(1), 22–33.

    23. Salvatore, D. (2006). Twin deficits in G-7 countries and global structural imbalances. Journal of Policy Modeling, 28, 701-712.

    24. Stigler, M. (2012). Threshold co-integration: overview and implementation in R, Revision4.

    25. Tang, T. C., and Lau, E. (2011). General equilibrium perspective on the twin deficits hypothesis for the U.S.A. Empirical Economics Letters, 10(3), 245 – 251.

    26. Tosun, M., Iyidogan, P.V., and Telatar, E. (2014). Testing twin deficits in selected central and eastern European economics: Bound testing approach with casaulity. Romanian Journal of Economic Forecasting, 2.

    27. Trachanas, E., and Katrakilidis, C. (2013). The dynamic linkages of fiscal andcurrent account deficits: new evidence from five highly indebted European countries accounting for regime shifts and asymmetries. Econ. Model. 31, 502–510.

    28. Tsay, R.S. (2002). Analysis of financial time series. 3rd Edition.

    29. Zubaidi, A., Lau, E., and Khalid, A. (2006). Testing twin deficits hypothesis using VARs and ariance decomposition. Journal of the Asia Pacific economy, 11(3), 331-354.