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Current Account Deficits in the Transition Economies

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  • Mark J. Holmes

Abstract

This study tests for the stationarity and sustainability of current account deficits for ten transition economies. For this purpose, a new test is employed that allows one to test for unit roots in heterogeneous panel datasets. While the benefits from creating a panel to overcome low test power are well known, this test also offers key advantages over existing alternative panel data unit root tests: it is able to identify which members within the panel are responsible for rejecting the null hypothesis of joint non-stationarity. In addition, the SURADF test does not presume disturbances that are independently and identically distributed. Using data covering 1993 - 2001, this study finds strong evidence in favour of current account mean-reversion for six countries. Of the six countries in the sample that joined the European Union in May 2004, non-stationarity was confirmed in the case of Lithuania only.

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  • Mark J. Holmes, 2004. "Current Account Deficits in the Transition Economies," Prague Economic Papers, Prague University of Economics and Business, vol. 2004(4), pages 347-358.
    • Handle: RePEc:prg:jnlpep:v:2004:y:2004:i:4:id:247:p:347-358
    DOI: 10.18267/j.pep.247
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    Cited by:

    1. Miomir Jakšiæ & Nikola Fabris & Milutin Ješiæ, 2018. "Intertemporal current account sustainability in the presence of structural breaks," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 413-442.
    2. Juan Carlos Cuestas, 2019. "The current account sustainability in Central and Eastern Europe: Has it changed?," Working Papers 2019/10, Economics Department, Universitat Jaume I, Castellón (Spain).
    3. Juan Carlos Cuestas & Luis A. Gil-Alana & Paulo José Regis, 2015. "The Sustainability of European External Debt: What have We Learned?," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 445-468, August.
    4. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.
    5. Juan Carlos Cuestas & Mercedes Monfort, 2021. "Current account sustainability in Central and Eastern Europe: structural change and crisis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(1), pages 141-153, February.
    6. Juan Carlos Cuestas, 2012. "A Note on the Current Account Sustainability of European Transition Economies," Working Papers 2012011, The University of Sheffield, Department of Economics.
    7. Juan Carlos Cuestas & Luis A. Gil-Alana & Paolo Jose Regis, 2014. "On the changes in the sustainability of European external debt: what have we learned," Bank of Estonia Working Papers wp2014-3, Bank of Estonia, revised 10 Oct 2014.

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    More about this item

    Keywords

    transition economies; panel data; current account; unit root;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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