TAILIEUCHUNG - Analyzing the fiscal deficit and the current account deficit in Vietnam a var approach
This paper is to investigate the relation between fiscal and current account deficits in Vietnam through conducting the Granger test of the Vector Autoregressive (VAR) Model. In order to explain the relationship between these kinds of deficit, a vector of variables, viz. interest rate (R), exchange rate (E), and GDP (Y) will be taken into account. | RESEARCHES & DISCUSSIONS The relation between current account and fiscal policy of Vietnam has been investigated from different perspectives by many economists and policy-makers. For example, some study whether or not there exists a relationship between fiscal policies and current accounts as per the twin deficits hypothesis. When the deficit in current accounts is quite great, the point is whether amendments to the fiscal policy can help deal with external imbalances. Issues related to fiscal and current account deficits contain significant implications for vital long-run policies. If a current account deficit occurs perpetually, it will adversely impinge on national economic health due to the fact that it is related to asset outflow and liabilities burden imposed on next generations. The higher the fiscal deficit, the heavier the liabilities burden. This can be explained that a country, to finance deficits, must borrow foreign loans. Thus, this paper is to investigate the relation between fiscal and current account deficits in Vietnam through conducting the Granger test of the Vector Autoregressive (VAR) Model. In order to explain the relationship between these kinds of deficit, a vector of variables, viz. interest rate (R), exchange rate (E), and GDP (Y) will be taken into account. Keywords: fiscal deficit, current account deficit, VAR model, fluctuation, budget overspend 1. Theoretical summation and research model a. Theoretical summation: The causality between fiscal and current account deficits can be examined from the following aspects: Firstly, the fiscal deficit can result in a current account deficit. Based on the Flemming-Mundell model (1963), effects of fiscal policies depend on many various factors, especially the exchange rate. Under the fixed exchange rate system, fiscal stimuli (such as tax reduction or subsidy) will increase the income or the price level, thereby exacerbating current accounts. Vice versa, under the floating exchange rate, an .
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