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Unit root tests of the current account balance: implications for international capital mobility

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  • Gundlach, Erich
  • Sinn, Stefan

Abstract

This paper assesses the extent of international capital mobility in a time series context. It explores the possibility that the current account balance of different OECD-countries contains a unit root. It is shown that if the ratio of the current account balance to GDP is found to be integrated of the order of one, the country is likely to be part of the world capital market. The results for the whole period 1950-1988 indicate that the current account balance of at least Germany, Japan, and the United States contains a unit root. Considering the subperiods before and after 1972 it is shown that international capital mobility increased after the breakdown of the Bretton Woods System.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 495.

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Date of creation: 1991
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Handle: RePEc:kie:kieliw:495

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Related research

Keywords: International capital mobility; current account adjustment; unit root tests;

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References

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  1. Engel, Charles & Kletzer, Kenneth, 1989. "Saving and Investment in an Open Economy with Non-traded Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 735-52, November.
  2. Feldstein, Martin, 1983. "Domestic saving and international capital movements in the long run and the short run," European Economic Review, Elsevier, Elsevier, vol. 21(1-2), pages 129-151.
  3. Campbell, John & Perron, Pierre, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," Scholarly Articles 3374863, Harvard University Department of Economics.
  4. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 277-301, March.
  5. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(2), pages 153-62, April.
  6. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 327-68, May.
  7. Tobin, James, 1983. "'Domestic saving and international capital movements in the long run and the short run' by M. Feldstein," European Economic Review, Elsevier, Elsevier, vol. 21(1-2), pages 153-156.
  8. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
  9. Sinn, Stefan, 1991. "Measuring international capital mobility: A critical assessment of the use of saving and investment correlations," Kiel Working Papers, Kiel Institute for the World Economy 458, Kiel Institute for the World Economy.
  10. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  11. Cochrane, John H., 1991. "A critique of the application of unit root tests," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 15(2), pages 275-284, April.
  12. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, Elsevier, vol. 16(1), pages 121-130, May.
  13. Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
  14. Murphy, Robert G., 1986. "Productivity shocks, non-traded goods and optimal capital accumulation," European Economic Review, Elsevier, Elsevier, vol. 30(5), pages 1081-1095, October.
  15. Westphal, Uwe, 1983. "'Domestic saving and international capital movements in the long run and the short run' by M. Feldstein," European Economic Review, Elsevier, Elsevier, vol. 21(1-2), pages 157-159.
  16. Martin Feldstein & Philippe Bacchetta, 1991. "National Saving and International Investment," NBER Chapters, National Bureau of Economic Research, Inc, in: National Saving and Economic Performance, pages 201-226 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Alberto Bagnai & Stefano Manzocchi, 1999. "Current-Account Reversals in Developing Countries: The Role of Fundamentals," Open Economies Review, Springer, Springer, vol. 10(2), pages 143-163, May.
  2. Florian Pelgrin & Sebastian Schich, 2004. "National Saving-Investment Dynamics and International Capital Mobility," Working Papers, Bank of Canada 04-14, Bank of Canada.
  3. André Mollick, 1999. "Current Account and Fiscal Policy in Japan: 1885–1991," Open Economies Review, Springer, Springer, vol. 10(2), pages 185-201, May.
  4. W. Jos Jansen, 2003. "International Capital Mobility: Evidence from Panel Data," International Finance, EconWPA 0310003, EconWPA.
  5. Fernando Perez de Gracia & Juncal Cuñado, 2001. "Intertemporal Current Account And Productivity Shocks: Evidence For Some European Countries," Working Papers, Asociación Española de Economía y Finanzas Internacionales 01-05, Asociación Española de Economía y Finanzas Internacionales.
  6. Holmes, Mark J, 2003. "Are the Trade Deficits of Less Developed Countries Stationary?. Evidence for African Countries," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 3(3).
  7. J. Mcclure, 1994. "The Feldstein-Horioka puzzle: The IS-LM model with optimal policy," Open Economies Review, Springer, Springer, vol. 5(4), pages 371-382, October.
  8. Claudia M. Buch, 1999. "Capital Mobility and EU Enlargement," Kiel Working Papers, Kiel Institute for the World Economy 908, Kiel Institute for the World Economy.
  9. Theo Panagiotidis & Mark J Holmes, 2005. "Sustainability and Asymmetric Adjustment: Some New Evidence Concerning Behaviour of the US Current Account," Money Macro and Finance (MMF) Research Group Conference 2005, Money Macro and Finance Research Group 29, Money Macro and Finance Research Group.
  10. Lapp, Susanne, 1996. "The Feldstein-Horioka paradox: A selective survey of the literature," Kiel Working Papers, Kiel Institute for the World Economy 752, Kiel Institute for the World Economy.
  11. Lori Leachman, 1994. "Saving, investment, and capital mobility: A comment on Leachman—A reply," Open Economies Review, Springer, Springer, vol. 5(1), pages 19-21, March.
  12. Chan, Tze-Haw & Baharumshah, Ahmad Zubaidi, 2003. "Measuring Capital Mobility in the Asia Pacific Rim," MPRA Paper 2208, University Library of Munich, Germany, revised 2004.
  13. Mark J. Holmes, 2004. "Current Account Deficits in the Transition Economies," Prague Economic Papers, University of Economics, Prague, University of Economics, Prague, vol. 2004(4), pages 347-358.

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