The relationship between budget deficits and capital inflows: Further econometric evidence

N. R.Vasudeva Murthy, Joseph M. Phillips

Research output: Contribution to journalArticle

4 Scopus citations


This research note examines the impact of federal deficits on U.S. capital inflows. Expanding on the previous work of Bahmani-Oskooee and Payesteh (1994), we employ the relatively new maximum likelihood procedure developed byJohansen (1988) andjohansen andJuselius (1990) to do cointegration tests. The results find a long run relationship between budget deficits and capital inflows. In addition, findings from error-correlation modeling reveal that short-run disequilibria in financial markets are corrected very rapidly, suggesting that these markets are efficient.

Original languageEnglish (US)
Pages (from-to)485-494
Number of pages10
JournalQuarterly Review of Economics and Finance
Issue number4
StatePublished - Dec 1 1996


All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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