Twin Deficits: Apparition or Reality for Albania
Twin Deficits: Apparition or Reality for Albania

Author(s): Nevila Mehmetaj
Subject(s): Social Sciences, Economy
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Fiscal deficit; Current account deficit; Economic growth; Granger causality; VECM
Summary/Abstract: This study examines the validity of the Keynesian Twin Deficits hypotheses (TDH) for Albania, using time series data of the span period from 2008 to 2021. The twin deficit hypothesis implies a long-run positive correlation running from the budget deficit to the current account deficit. For this, the Stationarity test, the Johansen co-integration test, the Granger causality, and VEC model techniques are used to examine the long-run and short-run relationship between budget balance, current account deficit, and real growth rate. The empirical findings suggest that the Keynesian twin deficits hypothesis is not valid in the context of the Albanian economy, the budget deficit has a negative relationship to the current account deficit. The policy implication of the results is that prudent management of the fiscal budget of the government may not prove to be a suitable policy instrument for the evaluation of the current account balance improvement.

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