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How Sustainable Are Oecd Current Account Balances In The Long Run?

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  • MARK J. HOLMES

Abstract

The study examines the long-run sustainability of OECD current account balances. For this purpose, tests for current account stationarity and then cointegration between exports and imports are based on recently developed panel data methods that offer increased power over existing time-series techniques. Unlike existing panel studies on this topic, this study utilizes techniques that enable the examination of sustainability for individual panel members. The first stage of the investigation relies on a novel approach to unit root testing whereby tests for stationarity are conducted within a seemingly unrelated regression framework. The second stage involves the estimation of the long-run relationship between exports and imports by a range of recently developed panel data techniques advocated by Pedroni. Using a panel of 11 OECD countries, the results from these techniques suggest that sustainability is present in six countries at most. Also, sustainability is generally a characteristic of the non-Euro countries. These results can be contrasted with existing group mean unit root and cointegration tests that indicate sustainability for the group as a whole. Copyright � 2006 The Author; Journal compilation � 2006 Blackwell Publishing Ltd and The University of Manchester.

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 74 (2006)
Issue (Month): 5 (09)
Pages: 626-643

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Handle: RePEc:bla:manchs:v:74:y:2006:i:5:p:626-643

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Cited by:
  1. Mark J. Holmes & Jes�s Otero & Theodore Panagiotidis, 2010. "On the Stationarity of Current Account Deficits in the European Union," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 730-740, 09.
  2. Issiaka Coulibaly & Blaise Gnimassoun, 2013. "Current account sustainability in Sub-Saharan Africa: Does the exchange rate regime matter?," EconomiX Working Papers 2013-42, University of Paris West - Nanterre la Défense, EconomiX.
  3. Mark Holmes & Theodore Panagiotidis & Abhijit Sharma, 2011. "The sustainability of India's current account," Applied Economics, Taylor & Francis Journals, vol. 43(2), pages 219-229.
  4. Gazi M. Hassan & Mark J. Holmes, 2014. "Do Remittances Facilitate a Sustainable Current Account?," Working Papers in Economics 14/07, University of Waikato, Department of Economics.
  5. Tuck Cheong Tang & Evan Lau, 2008. "An Empirical Investigation On The Sustainability Of Balancing Item Of Balance Of Payment Accounts For Oic Member Countries," Development Research Unit Working Paper Series 31/08, Monash University, Department of Economics.
  6. Ayla Oğuş Binatli & Niloufer Sohrabji, 2012. "Intertemporal Solvency of Turkey’s Current Account," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(1), pages 89-104, March.
  7. Theodore Panagiotidis & Mark J. Holmes & Abhijit Sharma, 2007. "The Sustainability of India's current account (1950-2003): Evidence from parametric and non-parametric unit root and cointegration tests," Working Paper Series 41-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  8. Dimitris Hatzinikolaou & Theodore Simos, 2013. "A new test for deficit sustainability and its application to US data," Empirical Economics, Springer, vol. 45(1), pages 61-79, August.
  9. Chen, Shyh-Wei, 2013. "Long memory and regime switching properties of current account deficits in the US," Economic Modelling, Elsevier, vol. 35(C), pages 78-87.
  10. Lanzafame, Matteo, 2012. "Current account sustainability in advanced economies," MPRA Paper 42384, University Library of Munich, Germany.
  11. Shyh-Wei Chen, 2010. "Testing for the Sustainability of the Current Account Deficit in Four Industrial Countries: A Revisitation," Economics Bulletin, AccessEcon, vol. 30(2), pages 1474-1495.
  12. Chen, Shyh-Wei, 2014. "Smooth transition, non-linearity and current account sustainability: Evidence from the European countries," Economic Modelling, Elsevier, vol. 38(C), pages 541-554.
  13. Barbara Pistoresi, 2013. "Italy's current account sustainability:a long run perspective, 1861-2000," Center for Economic Research (RECent) 092, University of Modena and Reggio E., Dept. of Economics.
  14. Chih-kai Chang & Tsangyao Chang, 2012. "Revisiting the sustainability of current account deficit: SPSM using the panel KSS Test with a Fourier Function," Economics Bulletin, AccessEcon, vol. 32(1), pages 538-550.
  15. Mariam Camarero & Josep Lluís Carrion-i-Silvestre & Cecilio Tamarit, 2010. "External imbalances in a monetary union. Does the Lawson doctrine apply to Europe?," Working Papers 1006, Department of Applied Economics II, Universidad de Valencia.

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