<abstract xmlns="http://www.w3.org/1999/xhtml">

<sec><h3>Background</h3><p>An econometric analysis of the twin deficit hypothesis is of special importance for the Republic of North Macedonia in view of its perspective membership in the European Union and from the point of view of its macroeconomic stability in the long run.</p></sec>
<sec><h3>Objectives</h3><p>The objective of this paper is to test empirically the validity of the twin deficit hypothesis in the Republic of North Macedonia.</p></sec>
<sec><h3>Methods/Approach</h3><p>To achieve this objective, we used actual quarterly data on Macedonia's budget and the current account deficit in the period from the first quarter of 2005 until the fourth quarter of 2017 and applied several econometrics methods: the Granger causality, a vector autoregressive (VAR) and a vector error correction model (VECM).</p></sec>
<sec><h3>Results</h3><p>These findings point to the conclusion that efforts focused on improving the current account imbalances through fiscal policy will be inefficient in the short run.</p></sec>
<sec><h3>Conclusions</h3><p>However, the existence of a long run relationship between the budget deficit and the current account deficit indicates the necessity of policy initiatives focused not only on reducing the budget deficit, but also on improving the external position of the country though export promotion.</p></sec>
</abstract>

BackgroundAn econometric analysis of the twin deficit hypothesis is of special importance for the Republic of North Macedonia in view of its perspective membership in the European Union and from the point of view of its macroeconomic stability in the long run.
ObjectivesThe objective of this paper is to test empirically the validity of the twin deficit hypothesis in the Republic of North Macedonia.
Methods/ApproachTo achieve this objective, we used actual quarterly data on Macedonia's budget and the current account deficit in the period from the first quarter of 2005 until the fourth quarter of 2017 and applied several econometrics methods: the Granger causality, a vector autoregressive (VAR) and a vector error correction model (VECM).
ResultsThese findings point to the conclusion that efforts focused on improving the current account imbalances through fiscal policy will be inefficient in the short run.
ConclusionsHowever, the existence of a long run relationship between the budget deficit and the current account deficit indicates the necessity of policy initiatives focused not only on reducing the budget deficit, but also on improving the external position of the country though export promotion.

Testing the Twin Deficit Hypothesis: Evidence from the Republic of North Macedonia

Ss. Cyril and Methodius University in Skopje

Business Systems Research Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

BackgroundAn econometric analysis of the twin deficit hypothesis is of special importance for the Republic of North Macedonia in view of its perspective...

Testing the Twin Deficit Hypothesis: Evidence from the Republic of North Macedonia

Published Online: Dec 03, 2020

Page range: 45 - 62

Received: Jan 30, 2020

Accepted: Jul 06, 2020

DOI: https://doi.org/10.2478/bsrj-2020-0026

Keywords
Twin deficit, Granger causality, VAR, VECM

© 2020 Vesna Bucevska, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Testing the Twin Deficit Hypothesis: Evidence from the Republic of North Macedonia

Published Online: Dec 03, 2020

Page range: 45 - 62

Received: Jan 30, 2020

Accepted: Jul 06, 2020

DOI: https://doi.org/10.2478/bsrj-2020-0026

KeywordsTwin deficit, Granger causality, VAR, VECM

© 2020 Vesna Bucevska, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Twin deficit, Granger causality, VAR, VECM