Open AccessTwin Deficits and Feldstein-Horioka Puzzle in the Case Iran
Author(s) -
Farzane Bagheri,
Fatemeh Daroghe Hazrati
Publication year - 2012
Publication title -
journal of social and development sciences
Language(s) - English
Resource type - Journals
ISSN - 2221-1152
DOI - 10.22610/jsds.v3i5.699
Subject(s) - current account , economics , deficit spending , granger causality , capital (architecture) , causality (physics) , econometrics , macroeconomics , exchange rate , debt , history , physics , archaeology , quantum mechanics
The main purpose of this study is to examine the relationship between budget deficit and current account deficit in Iran's economy through twin deficits and Feldstein-Horioka puzzle. To achieve this goal, Engel-Granger and seemingly unrelated regressions are used during "1971-2007". The results indicate that there exists a long run equilibrium link between budget deficit and current account deficit. There is a one–way causality relationship from the budget deficit toward the current account deficit .Testing the validity of the Feldstein-Horioka puzzle indicates a low level of international capital mobility for Iran.