The Relationship of the Current Account Balance and the Budget Balance

Abstract

This paper demonstrates that the traditional theory, that the current account balance and the budget balance are positively related, does not uphold when applied to Australian data. On the other hand, Australian data seems to indicate that Ricardian Equivalence Theorem better explains the movements in the economy.

Get full access to this article

View all access options for this article.

References

Barro

Robert J.

, Macroeconomics. 3rd ed. New York: John Wiley & Sons, Inc., 1990.

Belogia

Mitchell T.

and Courtney

C. Stone

. “Would Lower Federal Deficits Increase U.S. Farm Exports?” Federal Reserve Bank of St. Louis (November 1985) 5–19.

Bradley

Michael D.

and Susan

M. Potter

. “The State of the Federal Budget and the State of the Economy: Further Evidence.” Economic Inquiry (January 1986) 143–52.

Darat

Ali F.

, “Have Large Budget Deficits Caused Rising Trade Deficits?” Southern Economic Journal (April 1988) 879–87.

Evans

Paul

. “Is the Dollar Higher Because of the Large Budget Deficits?” Journal of Monetary Economics (November 1986) 229–43.

Froyen

Richard T.

Macroeconomic Theories and Policies. 3rd ed. New York: MacMillian Pub. Co., 1990.

International Monetary Fund. International Financial Statistics. Washington D.C.: tapes and journals.

Hall

Robert E.

and John

B. Taylor

. Macroeconomics. 2nd ed. New York: W.W. Norton & Co., 1988.

Krugman

Paul R.

and Obstfeld

Maurice

. International Economics. Glenview, Ill.: Scott Foreman & Co., 1988.

10.

United Nations. World Economic Survey. New York: U.N. Publications, 1990.