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Revisiting the sustainability of current account deficit: SPSM using the panel KSS Test with a Fourier Function

Author

Listed:
  • Chih-kai Chang

    () (Department of Risk Management and Insurance, Feng Chia University)

  • Tsangyao Chang

    () (Department of Finance, Feng Chia University, Taichung, Taiwan)

Abstract

This study applies the Sequential Panel Selection Method (SPSM) to test the mean reversion properties in the current account balance as percentages of GDP for the ten OECD countries (Australia, Canada, Finland, Germany, Korea, Mexico, Norway, Switzerland, United Kingdom and United States) over the span of 1981Q1– 2010Q4. SPSM classifies the whole panel into a group of stationary countries and a group of non-stationary countries. In doing so, we can clearly identify how many and which series in the panel are stationary processes. Our empirical results indicate that the mean reversion holds true for most of the OECD countries, with the exception of Germany, the United Kingdom and the United States. Our results have important economic implications for the ten OECD countries.

Suggested Citation

  • 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.
  • Handle: RePEc:ebl:ecbull:eb-11-00742
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    References listed on IDEAS

    as
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    Cited by:

    1. Amba Oyon Claude Marius & Taoufiki Mbratana & Kane Gilles Quentin, 2017. "Assessing the current account sustainability in ECCAS economies: A dual cointegration analysis," Economics Bulletin, AccessEcon, vol. 37(3), pages 1873-1894.

    More about this item

    Keywords

    Current Account Balance; Fourier function; OECD Countries; Panel KSS Test; Sequential Panel Selection Method; Stationarity;

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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