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Red Signals: Trade Deficits and the Current Account

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  • marzia raybaudi
  • martin sola

    ()

  • fabio spagnolod

Abstract

This paper proposes a method to asses the potential problems of sustainability of a country’s sovereign debt. We claim that the relevant variables used for this analysis are typically subject to changes which are associated with changes in macroeconomics policies. We propose a procedure for identifying periods under which the trade deficit and the current account accumulate at a nonstationary rate. Our approach is based on imposing identifying restrictions on Markov switching type models. An empirical application of the procedure to UK data is examined and discussed.We find that periods of non-stationary trade deficits typically coincide with current account crises.

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Bibliographic Info

Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Public Policy Discussion Papers with number 03-14.

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Length: 8 pages
Date of creation: May 2003
Date of revision:
Handle: RePEc:bru:bruppp:03-14

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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