Revisiting the twin deficits hypothesis: a quantile cointegration analysis over the period 1791-2013
Keywords: 
Twin deficits hypothesis
Structural breaks
Nonlinearities
Quantile ARDL model
Issue Date: 
2019
Publisher: 
Informa UK Limited
ISSN: 
1514-0326
Note: 
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/ 4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Citation: 
Antonakakis, N. (Nikolaos); Cuñado, J. (Juncal); Gupta, R. (Rangan); et al. "Revisiting the twin deficits hypothesis: a quantile cointegration analysis over the period 1791-2013". Journal of Applied Economics. 22 (1), 2019, 117 - 131
Abstract
We revisit the twin deficits hypothesis by examining the long-run cointegrating relationship between the US budget and trade deficits across various quantiles using a unique dataset for the period 1791–2013. The main results suggest the existence of nonlinearities and structural breaks in the relationship between the trade and budget deficits, indicating that the long-run relationship between the two variables has not been constant overtime. Furthermore, we find evidence in favour of the twin deficits hypothesis. Finally, the results suggest that the cointegrating coefficient in the long-run relationship between the two variables is not constant across different quantiles. In fact, we find that an increase in the budget deficit will have a greater effect on the trade deficit at quantiles below the median than at higher quantiles, suggesting that the effectiveness of restrictive fiscal policies directed to reduce trade deficits will depend on the actual size of the budget deficit.

Files in This Item:
Thumbnail
File
Revisiting the twin deficits hypothesis a quantile cointegration analysis over the period 1791 2013.pdf
Description
Size
2.04 MB
Format
Adobe PDF


Items in Dadun are protected by copyright, with all rights reserved, unless otherwise indicated.