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Shyh-Wei Chen
''Testing for the Sustainability of the Current Account Deficit in Four Industrial Countries: A Revisitation''
( 2010, Vol. 30 No.2 )
In this article we re-examine the mean-reverting property of the current account for the US, the UK, Canada and France. This is important because a current account that is not a stationary process implies that the external debts are unsustainable. The empirical results show that the current account-GDP ratios for the four countries are non-stationary processes based on the traditional unit root test. Bierens' non-linear unit root test results show that these current account-GDP ratios could exhibit mean stationarity, trend stationarity and non-linear trend stationarity once we account for a more general specification of the non-linear deterministic components based on a Chebishev polynomials approximation. One should, therefore, be cautious when concluding that the current account is sustainable or unsustainable based upon the traditional unit root test since it overlooks the non-linear property intrinsic in the data.
Keywords: Current account, sustainability, unit root, non-linearity
JEL: F3 - International Finance: General
C3 - Time-Series Models
Manuscript Received : May 25 2009 Manuscript Accepted : May 21 2010

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