Abstract
This paper examines empirically the causal relationship between budget deficits and trade deficits for Brazil from 1973:1Q through 1991:4Q. This relationship is investigated in the context of Granger's test of causality. The final prediction error criterion, as outlined by Hsiao [1981], is applied in determining the appropriate lag length of the two variables. Empirical results suggested the presence of bilateral causality between trade deficits and budget deficits.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Abell, J. D. “Twin Deficits During the 1980s: An Empirical Investigation,”Journal of Macroeconomics, 12, 1, Winter 1990, pp. 81–96.
Akaike, H. “Likelihood of a Model and Information Criteria,”Journal of Econometrics, 16, 1981, pp. 3–14.
Bahmani-Oskooee, M. “Effects of the U.S. Government Budget on Its Current Account: An Empirical Inquiry,”Quarterly Review of Economics and Business, 29, 4, Winter 1989, pp. 76–91.
Bahmani-Oskooee, M.; Payesteh, S. “Budget Deficits and the Value of the Dollar: An Application of Cointegration and Error-Correction Modeling,”Journal of Macroeconomics, 15, 4, Fall 1993, pp. 661–77.
Batten, D. S.; Thorton, D. “The Discount Rate, Interest Rates and Foreign Exchange Rates: An Analysis with Daily Data,”Review, Federal Reserve Bank of St. Louis, February 1985, pp. 22–30.
Cardoso, E. A. “Deficit Finance and Monetary Dynamics in Brazil and Mexico,”Journal of Development Economics, 37, 1992, pp. 173–97.
Cebula, R. J. “Federal Government Budget Deficit and Interest Rates: A Note,”Public Choice, 1987.
Cheng, H. “2+2=4,”Weekly Letter, Federal Reserve Bank of San Francisco, March 1987.
Darrat, A. F. “Have Large Deficits Caused Rising Trade Deficits?,”Southern Economic Journal, 54, April 1988, pp. 879–87.
Evans, P. “Is the Dollar High Because of Large Budget Deficits?,”Journal of Monetary Economics, 18, 1986, pp. 227–49.
__ “Do Large Deficits Produce High Interest Rates?,”American Economic Review, 75, 1985, pp. 68–87.
Feldstein, M. “Government Deficits and Aggregate Demand,”Journal of Monetary Economics, January 1982, pp. 1–20.
Granger, C. W. J. “Investigating Causal Relationships by Econometric Models and Cross Spectral Methods,”Econometrica, 37, 1969, pp. 424–38.
Hanink, D. M.The International Economy: A Geographical Perspective, New York, NY: Wiley, 1994.
Hoelscher, G. P. “Federal Borrowing and Short-Term Interest Rates,”Southern Economic Journal, 50, October 1983, pp. 319–33.
Hsiao, C. “Autoregressive Modelling and Money-Income Causality Detection,”Journal of Monetary Economics, 7, 1981, pp. 5–106.
Hutchinson, M.; Piggott, N. C. “Budget Deficits, Exchange Rates, and the Current Account: Theory and U.S. Evidence,”Economic Review, Federal Reserve Bank of San Francisco, Fall 1984.
Koluri, B. R.; Giannaros, D. S. “Deficit and External Debt Effects on Money and Inflation in Brazil and Mexico,”Eastern Economic Journal, 13, 3, July-September 1987, pp. 243–8.
Kvansnicka, J. G. “Bringing Down the Value of the U.S. Dollar,” Federal Reserve Bank of Chicago International Letter, November 1985, p. 552.
Laney, L. O. “Twin Deficits in the 1980s: What Are the Linkages?,”Business Economics, April 1986, pp. 40–5.
Plosser, C. I. “Government Financing Decisions and Asset Returns,”Journal of Monetary Economics, 9, 1982, pp. 325–52.
Todaro, M. L.Economic Development, New York, NY: Longman, 1994.
Wachtel, P.; Young, J. “Deficit Announcements and Interest Rates,”American Economic Review, 77, 1987, pp. 1007–12.
World Bank,Trends in Developing Economies, Washington, DC: World Bank, 1994.
Zini, Jr., A. “Brazil at the Crossroads: Foreign Debt and Fiscal Exhaustion,”International Economics and Financial Markets, 1989.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Faizul Islam, M. Brazil's twin deficits: An empirical examination. Atlantic Economic Journal 26, 121–128 (1998). https://doi.org/10.1007/BF02299354
Issue Date:
DOI: https://doi.org/10.1007/BF02299354