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Reviewing the sustainability/stationarity of current account imbalances with tests for bounded integration

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Author Info
Herwartz, Helmut
Xu, Fang

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Abstract

We investigate for 26 OECD economies if their current account imbalances are driven by stochastic trends. Standard ADF results are contrasted with tests accounting for the bounded support of the current account. Neglecting the latter feature might give misleading results in the sense that ADF based conclusions are biased towards the rejection of unit root features. The current account imbalances are found to be bounded nonstationary for most OECD economies. Panel based test statistics confirm the bounded nonstationarity for these series. --

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Publisher Info
Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2006,07.

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Date of creation: 2006
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Handle: RePEc:zbw:cauewp:4351

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Web page: http://www.wiso.uni-kiel.de/econ/

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Keywords: Current account; bounded unit root tests;

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Find related papers by JEL classification:
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing

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  1. Coakley, Jerry & Kulasi, Farida, 1997. "Cointegration of long span saving and investment," Economics Letters, Elsevier, vol. 54(1), pages 1-6, January. [Downloadable!] (restricted)
  2. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Alan M. Taylor, 2002. "A Century of Current Account Dynamics," NBER Working Papers 8927, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Martin Feldstein & Charles Horioka, 1980. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Cavaliere, Giuseppe, 2005. "Limited Time Series With A Unit Root," Econometric Theory, Cambridge University Press, vol. 21(05), pages 907-945, October. [Downloadable!]
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  6. Anindya Banerjee & Paolo Zanghieri, 2003. "A New Look at the Feldstein-Horioka Puzzle using an Integrated Panel," Working Papers 2003-22, CEPII research center. [Downloadable!]
  7. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I. [Downloadable!] (restricted)
  8. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
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  1. Herwartz, Helmut & Xu, Fang, 2006. "Panel data model comparison for empirical saving-investment relations," Economics Working Papers 2006,06, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
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