Twin deficits threat in the European Union

144 2017, XX, 1 Finance DOI: 10.15240/ ul/001/2017-1-010 In oduc ion In he 1980´s he US economy was ma ked by un il hen a he unusual ex e nal and in e nal de i ci s. Simila si ua ion g adually appea ed in o he coun ies. Du ing las decade i was analysed in he case o so called PIIGS coun ies (Po ugal, I eland, I aly, G eece, and Spain) in he Eu opean Union. This co-mo emen d aws in e es o many esea che s. Gene ally i is belie ed ha in e nal de i ci ( i scal budge de i ci ) causes ex e nal one (ex e nal balance de i ci ). Ex e nal balance de i ci is usually measu ed ia ade o cu en accoun de i ci . This phenomenon is called „ win de i ci “. Twin de i ci p oblem can be pe cei ed as a icious ci cle. High budge de i ci gene a es impo an cu en accoun de i ci and his in u n leads o highe budge de i ci . The e o e win de i ci h ea should be in he cen e o a en ion o policy make s. While om 2000 o 2007 he e we e no signi i can changes in public deb le el in he EU coun ies on a e age (including new membe s a es ha became he EU membe s since 2004, 2007, and 2013), du ing nex se en yea s om 2008 o 2014 public deb has isen by 22% on a e age. Du ing he i s obse ed pe iod e en PIIGS coun ies managed o main ain hei public deb le el. In addi ion Bulga ia succeeded o educe i s public deb by 55%. Du ing he nex pe iod public deb has isen signi i can ly mainly in he PIIGS coun ies (by 56% on a e age) bu also in Slo enia and C oa ia by 61% and 45% espec i ely. Recommended alue o public deb s emming om Maas ich c i e ia was o e s epped by 9 o 15 ou o 28 EU coun ies on a e age (including la e EU membe s) du ing he i s o second pe iod espec i ely. In e ms o a e age budge de i ci du ing he i s pe iod 9 coun ies exceeded alue o 3% o GDP ecommended by Maas ich c i e ia. Th oughou nex pe iod, 3% le el o budge de i ci was iola ed in 20 coun ies. Se e al au ho s, e.g. Cla ida e al. (2007), ecommended 5% as a maximum h eshold o cu en accoun de i ci o GDP. Highe de i ci ep esen s acco ding o hem a dange zone o a coun y. Lowe de i ci can be qui e easily in medium and long e m compensa e by cu en accoun su plus o by in es men s and o he i ems o capi al accoun . Howe e , a de i ci o e 5% leads o ex e nal ins abili y and o he nega i e impac s in a coun y. When calcula ing a e age alue o cu en accoun de i ci o GDP du ing pe iod om 2000 o 2014, 7 coun ies ou o 28 exceeded dange ous poin o 5%. I was as expec ed mainly he case o new EU membe s (Bulga ia, Cyp us, Es onia, La ia, and Romania) and PIIGS coun ies (G eece, Po ugal). While in he case o public deb we could obse e wo sening o si ua ion du ing las yea s, he opposi e was ue as o cu en accoun de i ci . All coun ies expe ienced imp o emen apa om Cyp us wi h sligh ly deepening de i ci . This can be explained by ecen i nancial and economic c isis accompanied by gene al dec ease o domes ic consump ion. So how i is wi h in e nal and ex e nal indeb edness o imbalances in he Eu opean Union? Resul s di e among coun ies (Kalou & Paleologou, 2011; Sipko, 2014). Nei he hypo hesis o win de i ci phenomenon, no hypo hesis on causali y ha in e nal de i ci implies ex e nal one was con i med in all coun ies. Consequen ly, i a coun y manages o educe i s in e nal de i ci i does no ha e o lead au oma ically o d op o ex e nal de i ci . Addi ionally he e is a need o emembe abou coun y and economy en i onmen s (Michalski, 2010). En i onmen o local speci i c economics is no a simple sum o mic oeconomic in l uences (Bem e al., 2015) bu should be conside ed wi h TWIN DEFICITS THREAT IN THE EUROPEAN UNION Ma ianna Sinicako a, Ve onika Suliko a, Bea a Ga u o a EM_1_2017.indd 144EM_1_2017.indd 144 13.3.2017 16:59:0413.3.2017 16:59:04 145 1, XX, 2017 Finance expec ed in l uences on he esul s (Szczygiel e al., 2015). E olu ion o exchange a es (Sipko, 2000), business en i onmen o small and medium en e p ises (Belás & Sopko á, 2016; Vi gle o á e al., 2016; Dub a ská e al., 2015; Ključniko e al., 2016; Belás e al., 2015) and o he ac o s can signi i can ly in l uence he esul s. Ne e heless, ambi ion o he pape is o i nd ou i win de i ci s exis wi hin he Eu opean Union consis ing o a ious a he he e ogeneous economies. We assume ha he ewe coun ies su e om he phenomenon he be e si ua ion o he EU policy make s is. Less p oblems wi h win de i ci s ac oss Eu ope lead o lowe p obabili y o con agion e ec in o he Eu opean coun ies. Though he aspec o win de i ci s is much b oade . Ou pape ex ends exis en li e a u e om a ious poin s o iew. Via se e al s eps we would like o iden i y i) p esence o win de i ci s in pa icula coun ies ii) di ec ion o hei causali y, iii) and a b eak poin ( h eshold) om which ela ionship be ween de i ci s may change. In addi ion, ou pape conside s di e si y o s udied g oups o coun ies. We compa e si ua ion in i) new e sus old membe s a es, ii) ad anced and eme ging o de eloping Eu opean coun ies (acco ding o he In e na ional Mone a y Fund classi i ca ion), iii) PIIGS and o he coun ies, i ) eu o a ea membe s and non-membe s. Ou app oach enables us o speci y ex e nal and i scal posi ion o esea ched coun ies. We will de e mine in e ac ions o absence o in e ac ions be ween a iables. The pape is o ganised as i ollows. Sec ion 1 p esen s a heo e ical backg ound and o e iew o ele an li e a u e in he i eld o win de i ci s, in e nal and ex e nal imbalances, e c. Sec ion 2 e iews da a applied in ou analysis. Sec ion 3 depic s employed me hods. Sec ion 4 p o ides empi ical esul s and discussion based on ou i ndings. The las sec ion b ings he conclusions. 1. Theo e ical Backg ound and Li e a u e Li e a u e in he i eld o ela ionship be ween cu en accoun de i ci and budge de i ci can be di ided in o ou g oups. Resea ch on: i) he win de i ci hypo hesis, ii) he cu en accoun a ge ing hypo hesis, iii) he eedback linkage, i ) and he in e - empo al Rica dian iew (see Tab. 1). The win de i ci hypo hesis claims ha budge de i ci causes cu en accoun de i ci . In o he wo ds, ising public expendi u es canno be ully and immedia ely sa is i ed by domes ic p oduc ion. Signi i can impo a ions o a coun y a e equi ed and his will, ce e is pa ibus, lead o cu en accoun de i ci . This phenomenon has been cla i i ed ia wo possible app oaches: a) he Mundell-Fleming heo y b) and he Keynesian abso p ion heo y. The Mundell-Fleming app oach s ems om he ac ha a ise o budge de i ci implies a g ow h in eal domes ic in e es a es. Consequen ly, his leads o capi al in l ows and exchange a es will app ecia e. The e o e, impo a ions will be ela i ely cheape and expo a ions will be less compe i i e. This si ua ion will igge cu en accoun de i ci . The Keynesian abso p ion heo y is based on he p inciple ha a ise o he budge de i ci gene a es a p essu e on domes ic consump ion and abso p ion. This con ibu es o cu en accoun de i ci . i) win de i ci hypo hesis budge de i ci  cu en accoun de i ci Mundell-Fleming heo y Keynesian abso p ion heo y ii) cu en accoun a ge ing budge de i ci  cu en accoun de i ci iii) eedback linkage budge de i ci   cu en accoun de i ci bidi ec ional causali y i ) no linkage budge de i ci X cu en accoun de i ci in e - empo al Rica dian iew Sou ce: own Tab. 1: Rela ionship be ween cu en accoun de i ci and budge de i ci EM_1_2017.indd 145EM_1_2017.indd 145 13.3.2017 16:59:0413.3.2017 16:59:04 146 2017, XX, 1 Finance Some au ho s (Islam, 1998; Sal a o e, 2006; Raul & A onso, 2009) ha e p o ed impo an nexus be ween he wo de i ci s and hei causali y om in e nal de i ci o ex e nal one. They e i i ed assump ions o he Mundell- Fleming and Keynesian heo ies. On he o he hand se e al au ho s, e.g. Ano uo and Ramchande (1998), Ma inhei o (2008), and S igli z (2010), obse ed and con i med e e sal ela ionship be ween ex e nal and in e nal de i ci . This opposi e ela ionship was named as ‘‘cu en accoun a ge ing’’ by Summe s (1988). De e io a ion in he cu en accoun will p obably cu b economic g ow h, ax e enues will d op down and his will aise budge de i ci , ce e is pa ibus. O he esea che s con i med a bidi ec ional causali y be ween in e nal and ex e nal de i ci s. Felds ein and Ho ioka (1980) obse ed ha in es men s and sa ings a e signi i can ly co ela ed and his leads o bi-causali y be ween he wo a iables. Simila empi ical i ndings a e in he con ibu ion by Kalyoncu (2007). Howe e , some au ho s did no i nd any ela ion be ween he wo de i ci s. These esul s a e in line wi h he Rica dian equi alence hypo hesis. This hypo hesis pos ula es ha budge and cu en accoun de i ci s a e no in e dependen . I economic g ow h d ops, go e nmen will p obably ealise i scal measu emen s o in l uence sa ings and in es men s, he e o e eal in e es a es, exchange a es and cu en accoun does no ha e o be changed (Ga cia & Ramajo, 2004; Michalski, 2009). Wi hin win de i ci s, some au ho s (Algie i, 2013) ha e been ecen ly ocusing on so called PIIGS coun ies due o hei signi i can indeb edness and p oblems in i nancial sec o . Complex s udies comp ising win de i ci analyses in la ge g oups o coun ies a e a he sca ce. Many au ho s ocus on pa icula economies o smalle g oups o coun ies. The e o e we would like o ul i l he gap and o analyse he Eu opean Union coun ies. Mos o he au ho s apply G ange -causali y es ing, panel da a, e o co ec ion model and gene alized leas squa es es ima o s. Howe e , we belie e ha i is use ul o iden i y a b eak poin a e which nexus be ween de i ci s can be changed. Thus we will employ he h eshold model o i nd his c i ical alue. 2. Da a Ou analysis comp ehends 28 Eu opean coun ies. The sample includes annual da a om 2000 o 2014. We employed ei he Eu os a o In e na ional Mone a y Fund da abases eleased in 2015. Simila ly o o he panel da a models o win de i ci s (Chinn & P asad, 2003; Fo e & Magazzino, 2013), cu en accoun balance (ca) is a dependen a iable and budge balance (bb) (budge de i ci ) is an independen a iable. The public deb is de i ned as a h eshold a iable in ou model, which enables us o de e mine he ela ion be ween budge balance and cu en accoun sepa a ely in se e al deb - o-GDP in e als. We include also con ol a iables which explain he cu en accoun balance. Fi s ly, we add an ou pu gap. Ou pu gap was calcula ed as a di e ence be ween ac ual and po en ial g oss domes ic p oduc (GDP). Po en ial GDP was calcula ed using usual Hod ick-P esco i l e . We expec ha an inc ease in ou pu gap will de e io a e he cu en accoun . Then, we add a eal e ec i e exchange a e, as an impo an de e minan o cu en accoun balance. Fu he , we ake in o accoun a ade openness; i a ade openness inc eases, he cu en accoun su plus is abou o g ow (as i is shown by Nickel and Vans eenkis e (2008)). Fu he , we add domes ic in es men s as an inc ease in domes ic in es men leads o he cu en accoun de i ci . Ano he con ol a iable is in l a ion measu ed as annual a e o change o using GDP de l a o . Rise o in l a ion should con ibu e o inc ease o cu en accoun de i ci and his in u n should lead o ising budge de i ci i we assume cu en accoun a ge ing hypo hesis (i.e. assump ion ha ex e nal imbalance implies in e nal one). Figu e 1 p o ides us wi h a ough o e iew o wo main ime se ies; cu en accoun de i ci s and budged de i ci . I app oxima ely cap u es si ua ion in ou g oups o coun ies om 2000 o 2014: i) old ad anced EU membe s, ii) he PIIGS EU membe s, iii) new ad anced EU membe s, i ) and new eme ging membe s. I seems ha bo h de i ci s did no appea in he g oup o old ad anced EU membe s wi h he excep ion o he Uni ed Kingdom. Howe e simul aneous p esence o bo h imbalances is mo e ob ious in h ee emaining g oups. Ne e heless we will apply se e al me hods o e i y ou win de i ci hypo hesis appa en EM_1_2017.indd 146EM_1_2017.indd 146 13.3.2017 16:59:0413.3.2017 16:59:04 147 1, XX, 2017 Finance bu no ce ain om Figu e 1. The employed me hodology is desc ibed in chap e 3. 3. Me hodology P esence o win de i ci phenomenon in he EU coun ies is e i i ed using s anda d Pea son´s co ela ions be ween wo p inciple a iables, budge balance and cu en accoun . Howe e , we will conside ime lag, oo, as i is possible ha budge balance de i ci o su plus can imply cu en accoun de i ci o su plus and ice e sa wi h a ce ain delay (Lascsáko á, 2016). We choose a delay o one yea and hus we pe o m c oss-co ela ions. G adually we comple e ou esea ch using G ange causali y es ing and panel da a h eshold model. 3.1 G ange Causali y Tes ing G ange causali y es ing will enable us o de e mine di ec ion o causali y be ween obse ed a iables. We will ocus on ela ionship be ween budge balance (bb) and cu en accoun balance (ca). Null hypo hesis will suppose ha budge balance does no G ange cause cu en accoun balance. On he con a y, al e na i e hypo hesis will be based on assump ion ha budge balance does no G ange cause cu en accoun . And we will es opposi e di ec ion, oo, conside ing budge balance as dependen and cu en accoun as independen a iable (Lascsáko á, 2010). G ange causali y es ing ypically deals wi h lagged alues o a iables o ake in o Fig. 1: Budge balance and cu en accoun (% o GDP) om 2000 o 2014 Sou ce: own ep esen a ion acco ding o he Eu os a (2015), In e na ional Mone a y Fund (2015) No e: BE – Belgium, BG – Bulga ia, CZ – Czech Republic, DK – Denma k, DE – Ge many, EE – Es onia, IE – I eland, EL – G eece, ES – Spain, FR – F ance, CR – C oa ia, IT – I aly, CY – Cyp us, LV – La ia, LT – Li huania, LU – Luxem- bou g, HU – Hunga y, MT – Mal a, NL – Ne he lands, AU – Aus ia, PL – Poland, PT – Po ugal, RO – Romania, SL – Slo- enia, SK – Slo akia, FI – Finland, SE – Sweden, UK – Uni ed Kingdom, PIIGS – Po ugal, I aly, I eland, G eece, Spain. Classi i ca ion o coun ies as ad anced o eme ging ones is acco ding o he In e na ional Mone a y Fund. EM_1_2017.indd 147EM_1_2017.indd 147 13.3.2017 16:59:0413.3.2017 16:59:04 148 2017, XX, 1 Finance accoun delayed impac o independen a iable on dependen one. Numbe o lags is usually chosen acco ding o Schwa z o Akaike in o ma ion c i e ion. Howe e , G ange causali y es ing has i s limi a ions. G ange causali y is no always ue causali y. G ange es is designed o measu e a nexus be ween wo a iables. Ne e heless, in eali y a ela ionship can be implied by h ee o mo e a iables (Toda & Yamamo o, 1995). The e o e i seems app op ia e o e i y hese causali ies using ec o au o eg ession o panel da a model. Fu he , we will apply panel da a h eshold model. 3.2 Panel Da a Th eshold Hansen (1999) p oposed a panel da a h eshold model wi h i xed e ec s. The model is de i ned in he ollowing way: yi = μi + β´ 1 xi I(qi ≤ γ) + + β´ 2 xi I(qi > γ)+ei (1) He e, he panel da a se is di ided in o wo egimes, depending on he ac whe he he eal alue o he h eshold a iable qi is highe o smalle han he es ima ed h eshold (i.e. he es ima ed alue o he h eshold a iable γ). These wo egimes a e dis inguished by di e en es ima ed eg ession coe i cien s β1 and β2. Econome ic modelling gi es he es ima ion o he eg ession coe i cien s β1, β2 and he es ima ion o he h eshold γ. Double h eshold model (i.e. he model wi h wo es ima ed h eshold alues o he h eshold a iable) can be de i ned in he ollowing way: yi = μi + β´ 1 xi I(qi ≤ γ1 ) + β´ 2 xi I(γ1 < < qi ≤ γ2 )+β´ 3 xi I(qi > γ2 ) + ei (2) whe e he es ima ed h esholds γ1 < γ2 (Hansen, 1999). 3.3 Th eshold Model o Twin Imbalances We suppose ha he ela ion be ween cu en accoun and budge balance depends on he public deb - o-GDP a io. The e o e, we de i ne a panel da a h eshold model o win imbalances. We w i e di ec ly a double- h eshold model, as u he es ima ion shows ha one- h eshold model is no well speci i ed: CAi = μi + β1BBi, –1I(DEBTi, –1 ≤ γ1 ) + + β2BBi, –1I(γ1 < DEBTi, –1 ≤ γ2 ) + + β3BBi, –1I(DEBTi, –1 > γ2 ) + + θ1GAPi, –1 + θ2REERi, –1 + + θ3OPENi, –1 + θ4INVi, –1 + ei (3) Whe e: CAi is a cu en accoun balance (in % o GDP). BBi, –1 is a budge balance (in % o GDP). DEBTi, –1 is a public deb (in % o GDP) – a h eshold a iable. GAPi, –1 is an ou pu gap (in % o po en ial GDP). REERi, –1 is a eal e ec i e exchange a e (index). OPENi, –1 is a ade openness (in % o GDP). INVi, –1 a e p i a e in es men (in % o GDP). In o de o a oid an endogenei y, each independen a iable is lagged by one yea , as i is ecommended by Baum e al. (2013). 4. Resul s and Discussion A i s we pe o m co ela ions be ween wo key a iables, i.e. cu en accoun and budge balance o e eal a basic ela ion be ween hem. S anda d co ela ions a e comple ed by c oss- co ela ions aking in o accoun delayed impac o s udied a iables. As s a ed p e iously, coun ies a e di ided in o ou g oups: i) old ad anced EU membe s, ii) PIIGS coun ies, iii) new ad anced EU membe s, i ) new eme ging EU membe s. Table 2 displays ha ela ion be ween in e nal and ex e nal (im)balances occu s in all ou g oups o coun ies ega dless hei eu o a ea membe ship. Howe e i is p esen in all PIIGS coun ies. P io o G ange causali y es ing we e i i ed s a iona i y o ou da a by Augmen ed Dickey- Fulle es and Kwia kowski-Phillips-Schmid - Shin. As s a iona i y was con i med, we used da a in hei le el alues. Table 3 cap u es esul s o G ange causali y es ing. Mo e o less e iden win de i ci s a e in 15 ou o 28 coun ies. The win de i ci phenomenon appea s in all ou g oups ega dless hei eu o a ea membe ship. Howe e , his p oblem occu s in all so called PIIGS coun ies. We con i med adi ional win de i ci hypo hesis based on assump ion ha budged de i ci implies cu en accoun de i ci in he case o he Ne he lands, G eece, I aly, EM_1_2017.indd 148EM_1_2017.indd 148 13.3.2017 16:59:0513.3.2017 16:59:05 149 1, XX, 2017 Finance Po ugal, Cyp us, Czech Republic, and C oa ia. We iden i i ed opposi e causali y (so called cu en accoun a ge ing) in six coun ies (Belgium, Finland, F ance, I eland, Mal a, and Romania). As o Finland ela ion be ween i s in e nal and ex e nal balance is implied a he by hei mu ual su pluses han de i ci s. Bi-causali y can be obse ed in Spain and Hunga y. We conside exis ence o bi-causali y as he mos complica ed si ua ion. Then i is a eal icious cycle. To sol e his p oblem, policy make s mus a ge bo h imbalances a he same ime which can be e y di i cul . Pe sis en mac oeconomic p oblems in hese wo coun ies con i m ou assump ion. Consequen ly we es ima ed a model wi h one h eshold; howe e he es ima ed eg ession was no well speci i ed and he es ima ed coe i cien s we e no s a is ically signi i can . Finally we decided o es ima e a model wi h wo h esholds (wi h h ee deb - o- GDP in e als). Resul s a e cap u ed in Table 4. The h eshold model es ima ed wo deb - o- GDP h esholds: 30.688% and 98.126%. Public deb he e o e di ided he ela ion be ween cu en accoun and budge balance in o h ee in e als: deb - o-GDP i) smalle han 30.688%; ii) in he in e al om 30.688% o 98.126%, iii) highe han 98.126%. I public deb is in e io o 30.688%, he e is a nega i e ela ion be ween budge balance and cu en accoun – win de i ci s a e no con i med. Howe e his i nding i s only o i e coun ies ou o 28 analysed economies. I is he case o Bulga ia, Es onia, La ia, Li huania, and Luxembou g. While hei a e age gene al g oss go e nmen deb measu ed o g oss domes ic p oduc was only 15.76%, i was 76.94% on a e age in 23 o he Eu opean coun ies h oughou all obse ed pe iod. While Bal ic coun ies and Luxembou g main ained s abilised and low public deb du ing whole ime se ies, Bulga ia dec eased i s indeb edness signi i can ly. Ini ial le el o i s public deb was 72.75% in 2000. In 2014 i was less han 27%. In addi ion absence o win de i ci s in hose coun ies is impo an ad an age o hei u he economic de elopmen . Du ing he i s pe iod Bulga ia had budge su pluses and cu en accoun de i ci s a he same ime. Ne e heless in he ollowing pe iod, budge de i ci s we e accompanied by a he balanced o e en posi i e cu en accoun . As o o he EU coun ies, hei public deb has been almos always o e 30.688%. Ye ou ou come indica es ha public deb a abou 30% and less could signi i can ly help o a oid p oblems o win de i ci s in he EU coun ies. This ac decidedly disc edi s Maas ich c i e ion on public deb se on he oo “gene ous” le el o 60% o GDP. A limi a ound 30% o EU coun ies would be mo e a ional. I public deb is in he in e al om 30.688% o 98.126%, he e is a posi i e ela ion be ween budge balance and cu en accoun – isk o win de i ci s o lowe alues o win de i ci s we e con i med. This is he case o mos o esea ched EU coun ies wi h he excep ion o Bulga ia, Luxembou g, and he Bal ic coun ies belonging o he i s and G eece, I aly, and Po ugal belonging o he las in e al. Though Belgium, I eland, Spain, and pa ially also he Uni ed Kingdom has been ecen ly app oaching o he las in e al. App oxima ely, hal o he coun ies om he second in e al mani es s mo e o less se ious ma ks o he win de i ci p oblem ega dless i s economic s a us and single cu ency applica ion, i.e. old ad anced membe s (Belgium, Finland, F ance, Uni ed Kingdom); PIIGS membe s (I aly, Po ugal); new ad anced membe s (Czech Republic, Cyp us, Slo akia); and new eme ging membe s (C oa ia, Hunga y, Romania). Finland appea s he e also due o i s win su pluses du ing las yea s. O he coun ies ace high isk o win de i ci p oblems in he nea u u e as hei public deb has isen signi i can ly du ing las yea s (e.g. Slo enia). I public deb is supe io o 98.126%, he e is a posi i e ela ion be ween budge balance and cu en accoun – high win de i ci s a e con i med. In conclusion, we do no con i m he alidi y o Rica dian equi alence unde high public deb (mo e han 30%). Twin de i ci hypo hesis has no been jus i i ed in he case o low public deb (less han 30%). This hypo hesis pos ula es independence be ween budge and cu en accoun de i ci s. I economic g ow h d ops, EU go e nmen s usually do no ealise su i cien i scal measu emen s o in l uence sa ings and in es men s o coun e balance de i ci s. Twin de i ci s a e con i med also i deb - o-GDP is impo an (i.e. highe han 98.126%). Such a high alue o public deb does no igge economic policy measu emen s in hose coun ies su i cien ly o p e en he p oblem o win de i ci s. EM_1_2017.indd 149EM_1_2017.indd 149 13.3.2017 16:59:0513.3.2017 16:59:05 150 2017, XX, 1 Finance Coun y Eu o a ea membe Co ela ions and c oss-co ela ions CA ~ BB CA ~ BB -1 BB ~ CA -1 Old ad anced EU membe s a es Aus ia AU € -0.253 -0.021 -0.485 Belgium BE € 0.705 0.514 0.719 Ge many DE € 0.287 0.125 0.178 Denma k DK -0.580 -0.888 -0.282 Finland FI € 0.845 0.835 0.812 F ance FR € 0.568 0.601 0.480 Luxembu g LU € -0.333 -0.075 -0.387 Ne he lands NL € -0.350 -0.657 0.129 Sweden SE 0.219 0.149 0.268 Uni ed Kingdom UK 0.409 0.322 0.630 Old so called “PIIGS” EU membe s a es G eece EL € 0.318 0.727 0.119 Spain ES € 0.601 0.804 0.215 I eland IE € 0.180 0.419 0.210 I aly IT € 0.287 0.569 0.233 Po ugal PT € 0.686 0.183 0.244 New ad anced EU membe s a es1 Cyp us CY € 0.615 0.707 0.186 Czech Republic CZ 0.562 0.642 0.441 Es onia EE € -0.563 -0.707 -0.118 La ia LV € -0.675 -0.597 -0.207 Li huania LT € -0.481 -0.586 -0.081 Mal a MT € 0.153 0.142 -0.081 Slo enia SL € -0.705 -0.764 -0.402 Slo akia SK € 0.714 0.263 0.179 New eme ging and de eloping EU membe s a es1 Bulga ia BG -0.590 -0.675 -0.130 C oa ia CR 0.683 0.808 0.362 Hunga y HU 0.585 0.674 0.608 Poland PL -0.064 0.118 0.183 Romania RO 0.004 0.342 0.493 Sou ce: own No e: Pea son´s co ela ions be ween cu en accoun and budge de i ci in ime . CA ~ BB -1 = c oss-co ela ions be ween cu en accoun in ime and lagged budge de i ci in ime -1. BB ~ CA -1 = C oss-co ela ions be ween budge de i ci in ime and lagged cu en accoun in ime -1. I Pea son´s coe i cien is om 0.6 o 1, i is high co ela ion ma ked as ; i Pea son´s coe i cien is om 0.4 o 0.59, i is medium co ela ion ma ked as . 1 classi i ca ion acco ding o In e na ional Mone a y Fund Tab. 2: Co ela ions and c oss-co ela ions be ween cu en accoun and budge balance om 2000 o 2014 EM_1_2017.indd 150EM_1_2017.indd 150 13.3.2017 16:59:0513.3.2017 16:59:05 151 1, XX, 2017 Finance Coun y Eu o a ea membe Causali y CA ~ BB BB ~ CA o de 1 o de 2 o de 1 o de 2 Old ad anced EU membe s a es Aus ia AU € 0.699 0.717 0.123 0.104 Belgium BE € 0.945 0.802 0.054 · 0.205 Ge many DE € 0.537 0.349 0.111 0.523 Denma k DK 0.302 0.113 0.293 0.582 Finland FI € 0.184 0.381 0.133 0.013 * F ance FR € 0.454 0.256 0.617 0.015 * Luxembu g LU € 0.675 0.376 0.148 0.229 Ne he lands NL € 0.008 ** 0.152 0.112 0.238 Sweden SE 0.972 0.432 0.576 0.896 Uni ed Kingdom UK 0.673 0.283 0.348 0.350 Old so called “PIIGS” EU membe s a es G eece EL € 0.051 · 0.006 ** 0.921 0.455 Spain ES € 0.008 ** 0.114 0.014 * 0.277 I eland IE € 0.142 0.708 0.097 · 0.019 * I aly IT € 0.431 0.011 · 0.522 0.334 Po ugal PT € 0.136 0.052 · 0.370 0.948 New ad anced EU membe s a es1 Cyp us CY € 0.054 · 0.082 · 0.474 0.809 Czech Republic CZ 0.109 0.067 · 0.376 0.126 Es onia EE € 0.185 0.381 0.673 0.772 La ia LV € 0.315 0.757 0.114 0.147 Li huania LT € 0.179 0.270 0.123 0.147 Mal a MT € 0.693 0.491 0.649 0.078 · Slo enia SL € 0.165 0.132 0.333 0.575 Slo akia SK € 0.257 0.965 0.514 0.314 New eme ging and de eloping EU membe s a es1 Bulga ia BG 0.111 0.456 0.642 0.211 C oa ia CR 0.021 * 0.149 0.733 0.793 Hunga y HU 0.041 * 0.230 0.118 0.051 · Poland PL 0.507 0.653 0.319 0.221 Romania RO 0.165 0.239 0.000 *** 0.007 ** Sou ce: own No e: BB = budge balance, CA = cu en accoun . O de 1 o 2 co esponds o one o wo lags espec i ely in ime se ies. ***=0.001, **=0.01, *=0.05, · =0.1 indica e 0.1%, 1%, 5%, 10% signi i cance le el. Signi i cance le el ***, ** and * is ma ked as ; signi i cance le el · is ma ked as . 1 classi i ca ion acco ding o In e na ional Mone a y Fund Tab. 3: G ange causali y es ing be ween cu en accoun de i ci and budge de i ci EM_1_2017.indd 151EM_1_2017.indd 151 13.3.2017 16:59:0513.3.2017 16:59:05 152 2017, XX, 1 Finance Va iables Coe i cien s S anda d E o BBi, -1 (DEBTi, -1 ≤ 30.688%) β1-0.652 *** 0.271 BBi, -1 (30.688% < DEBTi, -1 ≤ 98.126%) β2 0.145 *** 0.049 BBi, -1 (DEBTi, -1 > 98.126%) β3 0.443 *** 0.106 GAPi, -1 θ1-0.185 *** 0.070 REERi, -1 θ2 0.056 *** 0.022 OPENi, -1 θ3 0.055 *** 0.013 INVi, -1 θ4-0.605 *** 0.093 The es ima ed h esholds: 30.688 and 98.126 Sou ce: own No e: Double- h eshold model; ***=0.001, **=0.01, *=0.05, · =0.1 indica e 0.1%, 1%, 5%, 10% signi i cance le el. BB is budge balance, DEBT is public deb , GAP is ou pu gap, REER is eal e ec i e exchange a e, OPEN is openness, INV – in es men . Tab. 4: Th eshold model es ima ion; explained a iable: cu en accoun (in % o GDP) Fig. 2: The pe cen age o coun ies co esponding o he pa icula public deb - o-GDP egime Sou ce: own No e: pe cen age o coun ies wi h lowe public deb - o-GDP han 30.688%, wi h public deb - o-GDP be ween 30.688% and 98.126% and wi h public deb - o GDP highe han 98.126% in a pa icula yea . EM_1_2017.indd 152EM_1_2017.indd 152 13.3.2017 16:59:0513.3.2017 16:59:05