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International Intertemporal Solvency in OECD Countries: Evidence From Panel Unit Root

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  • Kalyoncu, Huseyin

Abstract

The purpose of this study is to investigate the sustainability of current account of 22 OECD countries by employing Liu and Tanner (1996) testing procedure. The procedure used here is to examine stationarity of current account. Using ADF unit root test on single time series, it is found that current account of most OECD countries have unit root. This outcome, however, might be due to the generally low power of this test. The aim of this paper is to reconsider this issue by exploiting the extra information provided by the combination of the time-series and cross-sectional data and the subsequent power advantages of panel data unit root tests. We apply the test advocated by Im, Pesaran and Shin (1997). According to estimation results current account deficits in OECD countries are sustainable.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 855.

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Date of creation: 2006
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Publication status: Published in Praque Economic Papers 15.1(2006): pp. 44-49
Handle: RePEc:pra:mprapa:855

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Keywords: panel data unit-root test; current account; solvency;

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  1. Bharat Trehan & Carl E. Walsh, 1988. "Testing intertemporal budget constraints: theory and applications to U. S. federal budget and current account deficits," Working Papers in Applied Economic Theory 88-03, Federal Reserve Bank of San Francisco.
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  3. Ahmed, S. & Rogers, J.H., 1993. "Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-Term Data?," Papers 5-93-6, Pennsylvania State - Department of Economics.
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  7. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
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  12. Wu, Jyh-Lin, 2000. "Mean reversion of the current account: evidence from the panel data unit-root test," Economics Letters, Elsevier, vol. 66(2), pages 215-222, February.
  13. Jyh-lin Wu & Stilianos Fountas & Show-lin Chen, 1996. "Testing for the Sustainability of the Current Account Deficit in Two Industrial Countries," Working Papers 11, National University of Ireland Galway, Department of Economics, revised 1996.
  14. James D. Hamilton & Marjorie A. Flavin, 1985. "On the Limitations of Government Borrowing: A Framework for Empirical Testing," NBER Working Papers 1632, National Bureau of Economic Research, Inc.
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  16. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. Chen, Shyh-Wei, 2011. "Current account deficits and sustainability: Evidence from the OECD countries," Economic Modelling, Elsevier, vol. 28(4), pages 1455-1464, July.

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