Interaction Between Twin Deficits: Indian Experience In The Macroeconomic Reform Period

The study investigates the interaction between twin deficits in the context of India during the macroeconomic reform period from 1994: II to 2001: I. Using the vector autoregression (VAR) model, it shows that there exists one-way interaction between the two deficits. The increase in fiscal deficit reduces the current account deficit, which contradicts most of the studies carried out in the context of other countries. This indicates a need to reinvestigate the determinants which could explain such inverse relationship.