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Are the U.S. Current Account Deficits Really Sustainable?

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  • Fountas Stilianos
  • Wu Jyh-Lin

Abstract

We have tested for a long-run relationship between four U.S. Export measures and analogous import measures (measured in nominal and real terms, levels and deflated by GNP) in the 1967-1994 period using quarterly data. Using various econometric tests that include standard Engle-Granger cointegration tests and two tests that allow for test-determined breaks in the cointegrating relationship, we have shown that the hypothesis of no long-run relationship between exports and imports cannot be rejected. This finding contrasts sharply with earlier literature and carries the important policy implication that US current account deficits are not sustainable. [F30]

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 13 (1999)
Issue (Month): 3 ()
Pages: 51-58

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Handle: RePEc:taf:intecj:v:13:y:1999:i:3:p:51-58

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  1. Gregory, A.W. & Hansen, B.E., 1992. "Residual-Based Tests for Cointegration in Models with Regime Shifts," RCER Working Papers 335, University of Rochester - Center for Economic Research (RCER).
  2. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 277-301, March.
  3. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 8633, Universite de Montreal, Departement de sciences economiques.
  4. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 10(3), pages 251-70, July.
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Cited by:
  1. Emmy, F.A. & Baharom, A.H. & Radam, Alias & Illisriyani, I., 2009. "Export and Import Cointegration in Forestry Domain: The Case of Malaysia," MPRA Paper 16673, University Library of Munich, Germany.
  2. Arize, Augustine C., 2002. "Imports and exports in 50 countries: Tests of cointegration and structural breaks," International Review of Economics & Finance, Elsevier, vol. 11(1), pages 101-115, April.
  3. Burak Güris & Burcu Kiran, 2011. "Foreign Trade Deficit Sustainability of Turkey," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 167-174.
  4. Kalyoncu, Huseyin, 2006. "International Intertemporal Solvency in OECD Countries: Evidence From Panel Unit Root," MPRA Paper 855, University Library of Munich, Germany.
  5. Ahmad Zubaidi Baharumshah & Evan Lau, 2002. "On the Sustainability of Current Account Deficits: Evidence from Four ASEAN Countries," Working Papers 0062, National University of Ireland Galway, Department of Economics, revised 2002.
  6. Ahmad Zubaidi Baharumshah & Evan Lau, 2009. "Structural breaks and the twin deficits hypothesis: Evidence from East Asian countries," Economics Bulletin, AccessEcon, vol. 29(4), pages 2517-2524.
  7. Cecen, Aydin & Xiao, Linlan, 2014. "Capital flows and current account dynamics in Turkey: A nonlinear time series analysis," Economic Modelling, Elsevier, vol. 39(C), pages 240-246.
  8. Chortareas Georgios E & Kapetanios George & Uctum Merih, 2004. "An Investigation of Current Account Solvency in Latin America Using Non Linear Nonstationarity Tests," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(1), pages 1-19, March.
  9. Kim, Bong-Han & Min, Hong-Ghi & Hwang, Young-Soon & McDonald, Judith A., 2009. "Are Asian countries' current accounts sustainable? Deficits, even when associated with high investment, are not costless," Journal of Policy Modeling, Elsevier, vol. 31(2), pages 163-179.
  10. Gnimassoun, Blaise & Coulibaly, Issiaka, 2014. "Current account sustainability in Sub-Saharan Africa: Does the exchange rate regime matter?," Economic Modelling, Elsevier, vol. 40(C), pages 208-226.
  11. Camarero, Mariam & Carrion-i-Silvestre, Josep Lluís & Tamarit, Cecilio, 2013. "Global imbalances and the intertemporal external budget constraint: A multicointegration approach," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5357-5372.
  12. Nag, Biswajit & Mukherjee, Jaydeep, 2012. "The sustainability of trade deficits in the presence of endogenous structural breaks: Evidence from the Indian economy," Journal of Asian Economics, Elsevier, vol. 23(5), pages 519-526.
  13. Lau, Evan & Baharumshah, Ahmad Zubaidi & Haw, Chan Tze, 2006. "Current account: mean-reverting or random walk behavior?," Japan and the World Economy, Elsevier, vol. 18(1), pages 90-107, January.
  14. Huseyin Kalyoncu, 2005. "Sustainability of Current Account for Turkey: Intertemporal Solvency Approach," Prague Economic Papers, University of Economics, Prague, vol. 2005(1), pages 82-88.
  15. Chen, Shyh-Wei, 2011. "Current account deficits and sustainability: Evidence from the OECD countries," Economic Modelling, Elsevier, vol. 28(4), pages 1455-1464, July.
  16. Emmy, F.A. & Baharom, A.H. & Alias, Radam & Mohd Rusli, Yacob, 2009. "Trade Sustainability in the Forestry Domain: Evidence from Malaysia using Johansen and Bound Test Method," MPRA Paper 17487, University Library of Munich, Germany.
  17. PERERA, Nelson & VARMA, Reetu, 2008. "An Empirical Analysis Of Sustainability Of Trade Deficit: Evidence From Sri Lanka," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 5(1), pages 79-92.
  18. Hüseyin Kalyoncu & Muhittin Kaplan, 2014. "Analyzing the Sustainability of Current Account in ASEAN Countries: Test of Intertemporal Borrowing Constraints," International Journal of Economics and Financial Issues, Econjournals, vol. 4(3), pages 564-571.
  19. 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.

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