Reviewing the Sustainability/Stationarity of Current Account Imbalances with Tests for Bounded Integration

The Manchester School, Vol. 76, No. 3, pp. 267-278, 2008

Posted: 14 Nov 2009

See all articles by Helmut Herwartz

Helmut Herwartz

University of Kiel - Institute of Statistics and Econometrics

Fang Xu

European University Institute; Christian-Albrechts-University of Kiel

Date Written: , 2008

Abstract

We investigate for 26 OECD economies whether their current account imbalances to GDP are driven by stochastic trends. Regarding bounded stationarity as the more natural counterpart of sustainability, results from Phillips-Perron tests for unit root and bounded unit root processes are contrasted. While the former hint at stationarity of current account imbalances for 12 economies, the latter indicate bounded stationarity for only six economies. Through panel-based test statistics, current account imbalances are diagnosed as bounded non-stationary. Thus, (spurious) rejections of the unit root hypothesis might be due to the existence of bounds reflecting hidden policy controls or financial crises.

Suggested Citation

Herwartz, Helmut and Xu, Fang, Reviewing the Sustainability/Stationarity of Current Account Imbalances with Tests for Bounded Integration (, 2008). The Manchester School, Vol. 76, No. 3, pp. 267-278, 2008, Available at SSRN: https://ssrn.com/abstract=1505490

Helmut Herwartz

University of Kiel - Institute of Statistics and Econometrics ( email )

Olshausensrabe 40-60
D-24118 Kiel
Germany

Fang Xu (Contact Author)

European University Institute ( email )

Max Weber Programme
Via delle Fontanelle 10,
Florence, Tuscany 50014
Italy

Christian-Albrechts-University of Kiel ( email )

Olshausenstr. 40-60
Kiel, 24118
Germany

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