Determining whether a country's current account is "sustainable" is not an easy task, as the notion of sustainability is related to complex macroeconomic and political-economy issues, but it is critical. Whether or not one finds empirical support for sustainability is related to the econometric technique employed: conventional unit-root tests typically fail to reject the existence of a unit root in the current-account imbalances of our sample of five crisis-affected Asian countries. However, using nonlinear unit-root tests we reject the existence of a unit root in favour of nonlinear mean reversion. Thus, contrary to what some others have claimed, the Asian crisis was not caused by these countries' current-account deficits, as their current accounts were on sustainable paths. We thus reject the existence of any threshold in current-account adjustment. These results also provide support for the intertemporal approach to the current account. In addition, we find that dramatic improvements in these countries' current-account deficits around 1998 were caused by sharp real depreciations of their currencies. Finally, we provide some policy implications and recommendations.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.