US external debt sustainability revisited: Bayesian analysis of extended Markov switching unit root test
The sustainability of US external debt, which has been an issue of global concern, is analyzed using a Markov switching (MS) unit root test applied to the flow of debt, i.e., the current account. The first to apply the MS unit root test to the issue of US external debt in order to examine local stationarity and global stationarity were Raybaudi et al. (2004). This paper introduces an extended MS unit root test where the transition probability is time-varying rather than fixed, as is usually the case, and the change of probability is explained by the real exchange rate, which theory suggests has a close relationship with the external balance. The extended MS unit root test calculated by the Markov Chain Monte Carlo (MCMC) method provides us with new insights on the issue of US external debt in recent years, suggesting that even though the debt/current account-GDP ratio remains relatively high, the probability of stationarity (sustainability) is unexpectedly high when recent US dollar depreciation is taken into account.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Francq, C. & Zakoian, J. -M., 2001.
"Stationarity of multivariate Markov-switching ARMA models,"
Journal of Econometrics,
Elsevier, vol. 102(2), pages 339-364, June.
- Christian Francq & Jean-Michel Zakoïan, 2000. "Stationarity of Multivariate Markov-Switching ARMA Models," Working Papers 2000-32, Centre de Recherche en Economie et Statistique.
- Maurice Obstfeld & Kenneth S. Rogoff, 2005.
"The unsustainable U.S. current account position revisited,"
Federal Reserve Bank of San Francisco, issue Feb.
- Maurice Obstfeld & Kenneth S. Rogoff, 2005. "The unsustainable U.S. current account position revisited," Proceedings, Federal Reserve Bank of San Francisco.
- Maurice Obstfeld & Kenneth Rogoff, 2007. "The Unsustainable U.S. Current Account Position Revisited," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 339-376 National Bureau of Economic Research, Inc.
- Obstfeld, Maurice & Rogoff, Kenneth S, 2005. "The Unsustainable US Current Account Position Revisited," Center for International and Development Economics Research, Working Paper Series qt4f63x50j, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Obstfeld, Maurice & Rogoff, Kenneth, 2005. "The Unsustainable US Current Account Position Revisited," CEPR Discussion Papers 5416, C.E.P.R. Discussion Papers.
- Maurice Obstfeld & Kenneth Rogoff, 2004. "The Unsustainable US Current Account Position Revisited," NBER Working Papers 10869, National Bureau of Economic Research, Inc.
- Maurice Obstfeld & Kenneth Rogoff & Richard Clarida, . "The Unsustainable U S Current Account Position Revisited," Working Paper 14901, Harvard University OpenScholar.
- 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.
- Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-23, May.
- Charles R. Nelson & Jeremy M. Piger & Eric Zivot, 2000.
"Markov regime-switching and unit root tests,"
International Finance Discussion Papers
683, Board of Governors of the Federal Reserve System (U.S.).
- Perron, Pierre, 1997.
"Further evidence on breaking trend functions in macroeconomic variables,"
Journal of Econometrics,
Elsevier, vol. 80(2), pages 355-385, October.
- Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Universite de Montreal, Departement de sciences economiques.
- Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Perron, P., 1990. "Further Evidence On Breaking Trend Functions In Macroeconomics Variables," Papers 350, Princeton, Department of Economics - Econometric Research Program.
- Bharat Trehan & Carl E. Walsh, 1987.
"Common trends, the government's budget constraint, and revenue smoothing,"
Working Papers in Applied Economic Theory
87-11, Federal Reserve Bank of San Francisco.
- Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444.
- Eiji Ogawa & Takeshi Kudo, 2004. "How much depreciation of the US dollar for sustainability of the current accounts?," Hi-Stat Discussion Paper Series d04-44, Institute of Economic Research, Hitotsubashi University.
- Gordon, S.F. & Filardo, A.J., 1993.
"Business Cycle Durations,"
9328, Laval - Recherche en Politique Economique.
- Ahmed, S. & Rogers, J.H., 1993.
"Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-Term Data?,"
5-93-6, Pennsylvania State - Department of Economics.
- Ahmed, Shaghil & Rogers, John H., 1995. "Government budget deficits and trade deficits Are present value constraints satisfied in long-term data?," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 351-374, November.
- Shaghil Ahmed & John H. Rogers, 1995. "Government budget deficits and trade deficits: are present value constraints satisfied in long-term data?," International Finance Discussion Papers 494, Board of Governors of the Federal Reserve System (U.S.).
- Webber, Anthony G., 2000. "Newton's gravity law and import prices in the Asia Pacific," Japan and the World Economy, Elsevier, vol. 12(1), pages 71-87, January.
- Albert, James H & Chib, Siddhartha, 1993. "Bayes Inference via Gibbs Sampling of Autoregressive Time Series Subject to Markov Mean and Variance Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 1-15, January.
- Hall, Stephen G & Psaradakis, Zacharias & Sola, Martin, 1999. "Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(2), pages 143-54, March-Apr.
- Matsubayashi, Yoichi, 2005. "Are US current account deficits unsustainable?: Testing for the private and government intertemporal budget constraints," Japan and the World Economy, Elsevier, vol. 17(2), pages 223-237, April.
- Raybaudi, Marzia & Sola, Martin & Spagnolo, Fabio, 2004. "Red signals: current account deficits and sustainability," Economics Letters, Elsevier, vol. 84(2), pages 217-223, August.
- Matthew Higgins & Thomas Klitgaard & Cedric Tille, 2005. "The income implications of rising U.S. international liabilities," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Dec).
- Corsetti, Giancarlo & Konstantinou, Panagiotis T, 2005. "Current Account Theory and the Dynamics of US Net Foreign Liabilities," CEPR Discussion Papers 4920, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:eee:japwor:v:22:y:2010:i:2:p:98-106. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.