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Reviewing the sustainability/stationarity of current account imbalances with tests for bounded integration

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  • Herwartz, Helmut
  • Xu, Fang

Abstract

We investigate for 26 OECD economies if their current account imbalances are driven by stochastic trends. Standard ADF results are contrasted with tests accounting for the bounded support of the current account. Neglecting the latter feature might give misleading results in the sense that ADF based conclusions are biased towards the rejection of unit root features. The current account imbalances are found to be bounded nonstationary for most OECD economies. Panel based test statistics confirm the bounded nonstationarity for these series.

Suggested Citation

  • Herwartz, Helmut & Xu, Fang, 2006. "Reviewing the sustainability/stationarity of current account imbalances with tests for bounded integration," Economics Working Papers 2006-07, Christian-Albrechts-University of Kiel, Department of Economics.
    • Handle: RePEc:zbw:cauewp:4351
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    References listed on IDEAS

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    8. Taylor, Alan M., 2002. "A century of current account dynamics," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 725-748, November.
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    Citations

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    Cited by:

    1. Herwartz, H. & Xu, F., 2010. "A functional coefficient model view of the Feldstein-Horioka puzzle," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 37-54, February.
    2. Cavaliere, Giuseppe & Xu, Fang, 2014. "Testing for unit roots in bounded time series," Journal of Econometrics, Elsevier, vol. 178(P2), pages 259-272.
    3. Helmut Herwartz & Fang Xu, 2009. "Panel data model comparison for empirical saving-investment relations," Applied Economics Letters, Taylor & Francis Journals, vol. 16(8), pages 803-807.
    4. Joscha Beckmann & Robert Czudaj, 2017. "Effective Exchange Rates, Current Accounts and Global Imbalances," Review of International Economics, Wiley Blackwell, vol. 25(3), pages 500-533, August.
    5. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," CESifo Working Paper Series 3948, CESifo.
    6. Markus Reischmann, 2016. "Empirical Studies on Public Debt and Fiscal Transfers," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63, September.
    7. Josep Lluís Carrion‐i‐Silvestre & María Dolores Gadea & Antonio Montañés, 2021. "Nearly Unbiased Estimation of Autoregressive Models for Bounded Near‐Integrated Stochastic Processes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(1), pages 273-297, February.
    8. Josep Lluís Carrion-i-Silvestre & María Dolores Gadea & Antonio Montañés, 2017. "“Unbiased estimation of autoregressive models forbounded stochastic processes," AQR Working Papers 201710, University of Barcelona, Regional Quantitative Analysis Group, revised Dec 2017.
    9. Josep Lluís Carrion-i-Silvestre & María Dolores Gadea, 2021. ""Detecting multiple level shifts in bounded time series"," IREA Working Papers 202115, University of Barcelona, Research Institute of Applied Economics, revised Jul 2021.
    10. Niklas Potrafke & Markus Reischmann, 2015. "Fiscal Transfers and Fiscal Sustainability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(5), pages 975-1005, August.

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    More about this item

    Keywords

    Current account; bounded unit root tests;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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