FISCAL AND CURRENT ACCOUNT IMBALANCES

Deficits in fiscal and current account balances in large number of countries reveal interesting implications of causal relationship between internal and external imbalances. Empirical evidence about occurrence of twin deficits or twin surpluses provides crucial information about validity of intertemporal approach. However, most recent dynamic cyclical changes during the crisis period revealed many questions about direct interconnection between macroeconomic performance and twin imbalances. In the paper we observe key features of twin imbalances in the European transition economies.