Prague Economic Papers 2004, 13(4):347-358 | DOI: 10.18267/j.pep.247
Current Account Deficits in the Transition Economies
- Loughborough University, Loughborough LE11 3TU, United Kingdom (e-mail: M.J.Holmes@Lboro.ac.uk).
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 SURADF 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.
Keywords: transition economies, panel data, current account, unit root
JEL classification: F3, F4
Published: January 1, 2004 Show citation
References
- Abuaf, N., Jorion, P. (1990), "Purchasing Power Parity in the Long Run." Journal of Finance, 45, pp.157-174. Go to original source...
- Breuer, J. B., McNown, R., Wallace, M. (2002), "Series-specific Unit Root Tests with Panel Data." Oxford Bulletin of Economics and Statistics, 64(5), pp. 527-546. Go to original source...
- Coakley, J., Kulasi, F. (1997), "The Cointegration of Long Span Saving and Investment." Economics Letters, 54, pp. 1-6. Go to original source...
- Coakley, J., Hasan, F., Smith, R. (1999), "Saving, Investment and Capital Mobility in the LDCs." Review of International Economics, 7(4), pp. 632-640. Go to original source...
- Gundlach, E., Sinn, S. (1992), "Unit Root Tests of the Current Account: Implications for International Capital Mobility." Applied Economics, June, pp. 617-620. Go to original source...
- Horvath, J. (1999), "The May 1997 Currency Crisis in the Czech Republic." Post-communist Economies, 11, pp. 277-298. Go to original source...
- Husted, S. (1992), "The Emerging US Current Account Deficit in the 1980s: A Cointegration Analysis." Review of Economics and Statistics, 74, pp. 159-166. Go to original source...
- Im, K. S., Pesaran, M. H., Shin, Y. (1997), "Testing for Unit Roots in Heterogeneous Panels." University of Cambridge, Department of Applied Economics, Working Paper.
- Im, K. S., Pesaran, M. H., Shin, Y. (2003), "Testing for Unit Roots in Heterogeneous Panels." Journal of Econometrics, 115, pp. 53-74. Go to original source...
- Krkoska, L. (2001), "Assessing Macroeconomic Vulnerability in Central Europe." Post-communist Economies, 13, pp. 41-56. Go to original source...
- Levin, A., Lin, C. (1993), "Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties." Unpublished manuscript, University of California at San Diego.
- Liu, P., Tanner, E. (1996), "International Intertemporal Solvency in Industrialized Countries: Evidence and Implications." Southern Economic Journal, 62(3), pp. 739-749. Go to original source...
- Maddala, G.S., Wu, S. (1997), "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test." Ohio State University, mimeo.
- O'Connell, P. (1998), "The Overvaluation of Purchasing Power Parity." Journal of International Economics, 44, pp.1-19. Go to original source...
- Ohr, R. (1998), "Currency Crises in Emerging Countries - Some Risks for Eastern Europe?" Hamburger Jahrbuch für Wirtschafts und Gesellschaftspolitik, 43, pp. 245-268.
- Otto, G. (1992), "Testing a Present-Value Model of the Current Account: Evidence from US and Canadian Time Series." Journal of International Money and Finance, October, pp. 414-430. Go to original source...
- Papell, D. (1997), "Searching for Stationarity: Purchasing Power Parity under the Current Float." Journal of International Economics, 43, pp. 313-332. Go to original source...
- Pattichis, C., Kanaan, M. (2001), "Is Lebanon's Trade Deficit Sustainable? A Cointegration Analysis." Economia Internazionale, 54(1), pp. 49-56.
- Perron, P. (1991), "Test Consistency with Varying Frequency." Econometric Theory, 7, pp. 341-368. Go to original source...
- Roubini, N., Wachtel, P. (1998), "Current Account Sustainability in Transition Economies." Cambridge, MA, NBER, Working Paper No. 6468. Go to original source...
- Sarno, L., Taylor, M. (1998), "Real Exchange Rates Under the Recent Float: Unequivocal Evidence of Mean Reversion." Economics Letters, 60, pp. 131-137. Go to original source...
- Shiller, R., Perron, P. (1985), "Testing the Random Walk Hypothesis: Power Versus Frequency of Observations." Economics Letters, 18, pp. 381-386. Go to original source...
- Taylor, M., Sarno, L. (1998), "The Behaviour of the Real Exchange Rate during the Bretton Woods Period." Journal of International Economics, 46 (2), pp. 281-312. Go to original source...
- Trehan, B., Walsh, C. (1991), "Testing Intertemporal Budget Constraints: Theory and Applications to US Federal Budget Deficits and Current Account Deficits." Journal of Money, Credit and Banking, May, pp. 423-441. Go to original source...
- Wickens, M., Uctum, M. (1993), "The Sustainability of Current Account Deficits: A Test of the US Intertemporal Budget Constraint." Journal of Economic Dynamics and Control, May, pp. 423-441. Go to original source...
- Wu, J-L. (2000), "Mean Reversion of the Current Account: Evidence from the Panel Data Unit Root Test." Economics Letters, 66, pp. 215-222. Go to original source...
- Wu, J-L., Chen, S-L., Lee, H-Y. (2001), "Are Current Account Deficits Sustainable? Evidence from Panel Cointegration." Economics Letters, 72, pp. 219-224. Go to original source...
- Wu, S., Wu, J-L. (1998), "Purchasing Power Parity under the Current Float: New Evidence from Panel Data Unit Root Tests." SUNY at Buffalo, mimeo.
This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.