The Relationship Between Fiscal Deficit and Current Account Deficit in the Case of the West African Monetary Zone: A Bivariate DSEM/RDSEM Approach

Asian Economic and Financial Review

article

Edmund Ayesu¹  John O Olaomi² 

[1] Centre for Social Science Research, Institute of Research, Innovation and Development, Kumasi Technical University, University of South Africa, Science Campus;University of South Africa, Science Campus

关键词: Current account deficit;    Fiscal deficit;    Twin deficit;    Dynamic structural equation model;    West African Monetary Zone;    Vector autoregression.;   

DOI  :  10.18488/journal.aefr.2021.117.575.590

学科分类：社会科学、人文和艺术（综合）

来源: Asian Economic and Social Society

【 摘 要 】

For the past three decades, the relationship between fiscal deficit and current account deficit has been a highly contested issue in macroeconomic research and policy. The debate has centered on whether deterioration in the fiscal balance negatively affects current account balance. Against this background, various studies have been conducted to ascertain the nature of the relationship between these two key macroeconomic variables; however, conclusions have been mixed. This study contributes to ongoing discourse by adopting a contemporary modelling framework to explore the relationship between the variables within the scope of the West African Monetary Zone (WAMZ). The study is based on the dynamic structural equation model (DSEM) and the residual dynamic structural equation model (RDSEM) and utilized annual secondary data spanning from 1990 to 2019. The study concluded that there is no direct relationship between fiscal and current account deficits, thus opposing the twin deficit hypothesis. However, there is a contemporaneous relationship between the two variables when the autoregressive relationship in the residuals is significant. We therefore establish that worsening current account and fiscal deficits occur concurrently and are driven by the lagged relationship with other factors not explicitly captured in the model.

【 授权许可】

CC BY