Fiscal Consolidation and, Current-Account Dynamics in South-Asian Countries.

Abstract

The study observes the effect of fiscal-policy shocks upon current-account balances and, contributed to provide an insight that how fiscal-policy shocks can influence current-account. For this purpose, Panel Structural Vector Autoregressive (PSVAR) model has been employed to investigate the influence of fiscal-policy shocks upon current-account considering the selected South-Asian Countries for the time period of 1984-2019. It provides an understanding that in what manner, fiscal shocks can determine the structure of current-account, and the effectiveness of output shocks, and, government shocks to manage the current account deficits. The main contribution of present study is considering South-Asia as an emerging-market characterized by massive deficits in current-account and, macroeconomic instability. The results suggest that expansionary fiscal shocks policy reduces the deficit in current account, which specify a divergence from twin-deficit approach.