These results have macroeconomic implications for fiscal policy in the Association of South-East Asian Nations (ASEAN-10). Thus, reverse causality is concluded from the CAD to the FD. Furthermore, it is observed that the interest rate is acting as a moderating factor between the FD and the CAD because it causes both the deficits. The DH causality test showed that the CAD is significantly affecting the FD, supporting the current account targeting hypothesis. The FMOLS and DOLS estimates indicated that the CAD is sensitive towards the FD and the exchange rate. The ARDL estimates suggested that there is a long-run relationship between tested variables and 92% annual convergence is possible for long-run equilibrium. The results disclosed that all tested variables are stationary at the first difference I(1) except the real interest rate (IR), which is stationary at level I(0). A panel data span from 1990 to 2019 is analyzed based on panel unit root tests, panel co-integration with auto-regressive distributed lag (ARDL), panel co-integration regression with fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS), and causal analysis with the Dumitrescu and Hurlin (DH) technique. This study aims to explore the causal relationship between fiscal deficit (FD) and current account deficit (CAD) along with policy recommendations based on long-run and short-run dynamics and sensitivities.

Autocad 2019 full