This paper provides new evidence on the existence and magnitude of the 'twin deficits' in developing economies. It finds that a one percent of GDP unanticipated increase in the government budget balance improves, on average, the current account balance by 0.8 percentage point of GDP. This effect...

This paper provides new evidence on the existence and magnitude of the 'twin deficits' in developing economies. It finds that a one percent of GDP unanticipated increase in the government budget balance improves, on average, the current account balance by 0.8 percentage point of GDP. This effect...