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Current Account Sustainability in the US: What Do We Really Know About It?

Listed author(s):
  • Dimitris K. Christopoulos
  • Miguel León-Ledesma

    ()

We revisit the debate on the sustainability of the current account dynamics in the US. Using the concept of sustainability as the ability to meet the long run intertemporal budget constraint, we test for unit roots in the US current account for the 1960-2004 period. We argue that there are several reasons to believe that the current account may follow a non-linear behaviour under the null of stationarity. This is confirmed by a set of non-linearity tests. We then fit an ESTAR model to the current account dynamics and reject the null of non-stationarity. Hence, we conclude in favour of sustainability. Furthermore, our results reveal that only for the period 1974-1992 we can find significant deviations of the current account from equilibrium and a slower speed of mean reversion.

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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 0412.

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Date of creation: Oct 2004
Handle: RePEc:ukc:ukcedp:0412
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School of Economics, University of Kent, Canterbury, Kent, CT2 7NP

Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/

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