Causality and the structure of Canada's balance of payments: Evidence from time series |
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Authors: | A Faroque W Veloce |
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Institution: | 1. Department of Economics, Laurentian University, P3E 2C6, Sudbury, Ontario, Canada 2. Department of Economics, Brock University, L2S, 3A1, St. Catharines, Ontario, Canada
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Abstract: | Recent historical data on Canada's balance of payments reveals a persistent pattern of current account deficits and capital
account surpluses. The theoretical interpretation and significance of this recurrent pattern are controversial issues among
economists. The essence of this debate is, in our view, a disagreement of a more fundamental nature concerning the underlying
causal relationship between the current and capital accounts. Three different causal viewpoints are identified and discussed.
Then, an empirical investigation using both bivariate and multivariate time series analysis is conducted in order to help
discriminate among the viewpoints. Our findings strongly suggest a feedback relation between the current and the long-term
capital account indicating that unidirectional causal viewpoints are inconsistent with the Canadian experience.
We are grateful to the editor and two anonymous referees for their valuable comments. |
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