Twin Deficit Hypothesis and Feldstein-Horioka Hypothesis: Case Study of Indonesia

Wirasti, Anisha and Widodo, Tri (2017): Twin Deficit Hypothesis and Feldstein-Horioka Hypothesis: Case Study of Indonesia.

Abstract

This paper aims to empirically examine the Twin Deficit Hypothesis and Feldstein-Horioka Hypothesis in the case of Indonesia. The cointegration result shows that fiscal imbalances, investment and current account imbalances have a long run relationship. Autoregressive Distributed Lag (ARDL) and Autoregressive Distributed Lag-Error Correction Model (ARDL-ECM) approaches are applied to estimate the long run and short run relationships, respectively. The estimation results show that the fiscal imbalances have a positive impact on the current account imbalances in Indonesia. Meanwhile, investments have a negative impact on the current account. Those results indicate that Twin Deficit Hypothesis and Feldstein-Horioka Hypothesis hold in Indonesia.

• Item Type: MPRA Paper
• Language: English
• Keywords: Twin Deficit Hypothesis, Feldstein-Horioka Hypothesis, ARDL, ECM.
• Subjects: F - International Economics > F3 - International Finance > F30 - General; F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission

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