Study on the Relationship Between the Current Account and the State Budget

This paper investigates the relationship between current account balance and budget balance in Vietnam using quarterly data from 1997Q1 to 2018Q1. Other explanatory variables are interest rate of government bonds and real exchange rate. The result reveals that all four variables, current account balance, budget balance, government bonds yield and real exchange rate, are co-integrated and there is one co-integrated vector relationship. Otherwises, using the Granger causality test, it is shown that, budget balance has a directional causality relationship with current account balance which means that the research supports Keynesian’s view and there are twin deficits happened in Vietnam during 1997 to 2018. In addition, there are two other directional relationships from real exchange rate to current account and current account to interest rate of government bonds. Furthermore, there are also other factors which can cause the two deficits individually.