Do Latin American Countries Have an Incentive to Default on Their External Debts?: A Perspective Based on Long-Run Current Account Behavior
It is argued that the sustainability of external debts depends on the stationarity of the current account balance. This study tests for the stationarity of current account deficits for a sample of sixteen Latin American countries, employing a new test, advocated by Breuer et al. (2002), that allows one to test for unit roots in heterogeneous panel data sets. This version of the augmented Dickey-Fuller (ADF) test involves estimating ADF regressions within a seemingly unrelated regression (SURADF) framework. The benefits of creating a panel to overcome low test power are well known, but this particular test also offers key advantages over existing alternative panel data unit root tests. Unlike previous tests, this one identifies which members from within the panel are responsible for rejecting the null hypothesis of joint nonstationarity. In addition, the SURADF test does not presume disturbances that are independently and identically distributed. Using annual data covering the period 1979-2001, this study finds strong evidence in favor of current account mean-reversion for at least twelve Latin American countries.
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.
Volume (Year): 42 (2006)
Issue (Month): 1 (February)
|Contact details of provider:|| Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024|
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.:
- Husted, Steven, 1992. "The Emerging U.S. Current Account Deficit in the 1980s: A Cointegration Analysis," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 159-166, February.
- 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.
- 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.
- Tom Doan, "undated". "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Wu, Jyh-Lin & Chen, Show-Lin & Lee, Hsiu-Yun, 2001. "Are current account deficits sustainable?: Evidence from panel cointegration," Economics Letters, Elsevier, vol. 72(2), pages 219-224, August.
- Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, vol. 43(3-4), pages 313-332, November.
- Sarno, Lucio & Taylor, Mark P., 1998.
"Real exchange rates under the recent float: unequivocal evidence of mean reversion,"
Elsevier, vol. 60(2), pages 131-137, August.
- Lucio Sarno & Mark P. Taylor, "undated". "Real Exchange Rates under the Recent Float: Unequivocal Evidence of Mean Reversion," Economics and Finance Discussion Papers 97-14, Economics and Finance Section, School of Social Sciences, Brunel University.
- Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-445, July.
- Breuer, Janice Boucher & McNown, Robert & Wallace, Myles, 2002. " Series-Specific Unit Root Tests with Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(5), pages 527-546, December.
- Wickens, M. R. & Uctum, Merih, 1993. "The sustainability of current account deficits : A test of the US intertemporal budget constraint," Journal of Economic Dynamics and Control, Elsevier, vol. 17(3), pages 423-441, May.
- 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 631-652, Special I.
- Serena Ng & Pierre Perron, 2001.
"LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Econometric Society, vol. 69(6), pages 1519-1554, November.
- Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
- 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.
- 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.
- Pattichis, Charalambos & kanaan, Mona, 2001. "Is Lebanon’s Trade Deficit Sustainable? A Cointegration Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 54(1), pages 49-56.
- Coakley, Jerry & Kulasi, Farida, 1997. "Cointegration of long span saving and investment," Economics Letters, Elsevier, vol. 54(1), pages 1-6, January.
- 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.
- Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996.
"Efficient Tests for an Autoregressive Unit Root,"
Econometric Society, vol. 64(4), pages 813-836, July.
- Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-783, August.
- Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
- Tom Doan, "undated". "ERSTEST: RATS procedure to perform Elliott-Rothenberg-Stock unit root tests," Statistical Software Components RTS00066, Boston College Department of Economics.
- Tom Doan, "undated". "GLSDETREND: RATS procedure to perform local to unity GLS detrending," Statistical Software Components RTS00077, Boston College Department of Economics.
- Maryann Keating & Barry Keating, 2003. "Measuring the sustainability of Latin American external debt," Applied Economics Letters, Taylor & Francis Journals, vol. 10(6), pages 359-362.
- Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-174, March.
- Jerry Coakley & Farida Kulasa & Ron Smith, 1996.
"Saving, Investment and Capital Mobility in LDCs,"
Archive Discussion Papers
9610, Birkbeck, Department of Economics, Mathematics & Statistics.
When requesting a correction, please mention this item's handle: RePEc:mes:emfitr:v:42:y:2006:i:1:p:33-49. 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: (Chris Nguyen)
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.