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The intertemporal budget constraint and current account sustainability in Cyprus: Evidence and policy implications

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Pattichis, Charalambos

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Abstract Using the recently developed ‘bounds’ testing approach, this paper provides evidence that Cyprus is not in violation of its intertemporal budget constraint and its current account balance is ‘strongly’ sustainable in the long-run. A policy implication of these findings is that the loss of exchange rate policy following the adoption of the Euro in 2008 may not be a serious cost for Cyprus. On a methodological level, the results presented in this paper support theoretical models that employ an intertemporal approach to modeling the current account. Keywords: Intertemporal budget constraint; current account sustainability; Cyprus. JEL: F320, F410
Classification National Economy; Economic Policy
Document language English
Publication Year 2010
Page/Pages p. 463-473
Journal Applied Economics, 42 (2010) 4
DOI http://dx.doi.org/10.1080/00036840802599875
ISSN 1466-4283
Status Postprint; reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)
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