Are current account deficits sustainable?

Wu, Jyh‐Lin; Chen, Show-Lin; Lee, Hsiu-Yun

doi:10.1016/s0165-1765(01)00420-7

Cited by 83 publications

(46 citation statements)

References 13 publications

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“…The usefulness of this model (or its variation) in explaining the behavior of current accounts in US and other developed nations has already been explored by numerous authors (e.g. Wicken and Uctum, 1993;Cashin and McDermott, 1998;Fountas and Wu, 1999;Irandoust andBoo Sjoo, 2000 andWu et al, 2001). Less emphasis has been placed on testing current account sustainability using data from developing countries (see for example, Milesi-Ferretti and Razin, 1996 a, b;Reisen, 1998;Yan, 1999 andApergis et al, 2000) 6 .…”

Section: Theoretical Modelmentioning

confidence: 99%

On the sustainability of current account deficits: evidence from four ASEAN countries

Baharumshah

Lau

Fountas

2003

Journal of Asian Economics

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This paper examines the sustainability of the current account imbalance for four ASEAN countries (Indonesia, Malaysia, the Philippines and Thailand) over the 1961-1999 period.To this end, we utilize the intertemporal budget constraint (IBC) model to explain the behavior of the current account in these countries. The analysis is based on various unit root and cointegration procedures including those allowing for a structural break to deal with the major shortcomings of previous studies. The empirical results indicate clearly that for all countries, except Malaysia, current account deficits were not on the long-run steady state in the pre-crisis era. This leads us to conclude that the current accounts of these countries were unsustainable and did not move towards external account equilibrium. Moreover, the persistent current account deficits might serve as a leading indicator of financial crises. In contrast, we find strong comovement between inflows and outflows in Indonesia, the Philippines and Thailand in the period including the post-crisis years, while Malaysia was on an unsustainable path. This is because macroeconomic performance of most of the ASEAN countries has changed dramatically since the onset of the Asian crisis in mid-1997. The evidence suggests that action to prevent large appreciations should have been taken prior to the 1997 crisis. JEL classification: F30, F32

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Section: Theoretical Modelmentioning

confidence: 99%

On the sustainability of current account deficits: evidence from four ASEAN countries

Baharumshah

Lau

Fountas

2003

Journal of Asian Economics

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“…These studies generally found that current accounts are non-stationary for several major industrialized countries. More recently, however, Wu (2000) and Wu, Chen and Lee (2001) confirm sustainability of the OECD current account deficits using panel data unit root and cointegration tests.…”

Section: Introductionmentioning

confidence: 98%

“…The stationarity and sustainability of current account balances has been the focus of many researchers over a number of years (see, inter alia, Trehan and Walsh, 1991;Gundlach and Sinn, 1992;Otto, 1992;Wickens and Uctum, 1993;Liu and Tanner, 1996;Wu, 2000 andWu et al, 2001). These studies have provided mixed conclusions with respect to case studies involving subsets of the OECD countries.…”

Section: Introductionmentioning

confidence: 99%

Current Account Deficits in the Transition Economies

Holmes¹

2004

Prague Economic Papers

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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 SU-RADF 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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“…In particular, we consider the paper by Tanner and Liu (1994) on the sustainability of the US budget deficit, and the papers by Husted (1992) and Wu et al (2001) on the sustainability of the US currentaccount deficit. These authors use various deficit measures and sample periods.…”

Section: Application Of the New Test To The Us Budget And Current-accmentioning

confidence: 99%

“…Second, consider the results of Husted (1992) and Wu et al (2001) on the sustainability of the US current-account deficit. These authors report evidence favoring the hypotheses of cointegration and b = 1 in Eq.…”

Section: Please Insert Table 4 Herementioning

confidence: 99%

A new test for deficit sustainability and its application to US data

Hatzinikolaou

Simos

2012

Empir Econ

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In this paper, we define deficit sustainability by requiring formally that both the discounted debt vanish asymptotically and the undiscounted debt be bounded. Thus, a new necessary condition and a new testing procedure emerge. We propose a new test statistic and prove that its limiting distribution is standard normal, N(0, 1). Its finite-sample distribution differs from N(0, 1), however, mainly because it has fat tails, so we derive empirical critical values using simulations. Using the new test and United States (US) quarterly data, the conclusions of three earlier papers that fail to reject the sustainability of the US budget or current-account deficit are reversed.

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Are current account deficits sustainable?

Cited by 83 publications

References 13 publications

On the sustainability of current account deficits: evidence from four ASEAN countries

On the sustainability of current account deficits: evidence from four ASEAN countries

Current Account Deficits in the Transition Economies

A new test for deficit sustainability and its application to US data

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