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

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  • 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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File URL: http://econstor.eu/bitstream/10419/22012/1/EWP-2006-07.pdf
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Bibliographic 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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Keywords: Current account; bounded unit root tests;

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  1. Cavaliere, Giuseppe, 2005. "Limited Time Series With A Unit Root," Econometric Theory, Cambridge University Press, vol. 21(05), pages 907-945, October.
  2. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  3. Taylor, Alan M., 2002. "A century of current account dynamics," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 725-748, November.
  4. Anindya Banerjee & Paolo Zanghieri, 2003. "A New Look at the Feldstein-Horioka Puzzle using an Integrated Panel," Working Papers 2003-22, CEPII research center.
  5. 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.
  6. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  7. Coakley, Jerry & Kulasi, Farida, 1997. "Cointegration of long span saving and investment," Economics Letters, Elsevier, vol. 54(1), pages 1-6, January.
  8. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
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Cited by:
  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.

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