The Twin Deficit Hypothesis: A Global Empirical Approach

The present paper tries to investigate empirically the global characteristics of the twin deficit hypothesis (TDH). A global definition of the TDH is presented. Different theoretical interpretations of the TDH at national and international levels are discussed. The authors uncover empirical evidence and theoretical interpretation about the interaction between the THD and the Feldstein-Horioka puzzle. Granger causality tests are performed between THD associated variables. The authors develop a new, TDH related interpretation, of the 2007-2008 global financial crisis.