Interactions between the budget and the current account balance: twin deficits in selected Central and East European countries

Nowadays, especially after the global financial crisis of 2008, the external and internal balance of individual countries has become a major area of research. This is even more important in the CEE region, as the crisis has shown that imbalances in this region have significantly increased their sen- sitivity to the crisis. In our research, we aim to explore whether there is, if any, relationship between fiscal policy and the balance of the current account in Poland, Hungary and the Czech Republic. The period which we will analyse is the last two decades since the millennium. Based on a literature review, we examine the relationship between the budget deficit and the current account with econo- metric methods, Engle-Granger cointegration test and Vector Error Correction Model (VECM). Our results will show that we can find different, if any, relationship between the two factors in the different countries. It means, however, that there are a lot of similarities between these countries, from this point of view they are quite heterogeneous. Thus, in this field, there is not one general solution for every country; each country has to find their way to handle the twin deficit problem