scholarly journals Are the Current Account Imbalances on a Sustainable Path?

2020 ◽  
Vol 13 (9) ◽  
pp. 201
Author(s):  
Seema Narayan ◽  
Sivagowry Sriananthakumar
Keyword(s):  
Current Account ◽  
Structural Breaks ◽  
Structural Break ◽  
The United States ◽  
The Philippines ◽  
Strong Form ◽  
Full Sample ◽  
External Imbalances ◽  
Cointegration Tests ◽  
Proportional Increase

This paper examines the current accounts of 16 developed and developing countries over the period 1970 to 2018. We test whether these nations satisfy their intertemporal solvency condition for external imbalances. The solvency condition in the strong form entails: (1) a cointegration, or a long run equilibrium, relationship between exports and imports of goods and services; and (2) an increase in imports leading to a proportional increase in exports. Our findings imply that the external imbalances are a cause of vulnerability for several nations. Bangladesh satisfies the abovementioned solvency condition—in other words, its current account is sustainable in the strong form. Australia, Ecuador, Honduras, Mexico, New Zealand, and Venezuela show weak forms of sustainability. For these six nations, the presence of a cointegration relationship between exports and imports coincides with less than proportional increases in exports with increases in imports. The current accounts of Chile and Paraguay are unsustainable—while their exports and imports are cointegrated, a growth in imports leads to a more than proportional increase in exports. For a few nations that failed the full sample (1970–2018) cointegration test, we developed sub-samples by anchoring the start date at 1970 and increasing the sample by every five years from 1999 to 2014. From the sub-samples, we find evidence of intermittent, but weak, cases of sustainability for Peru and South Africa. We show that Panama’s current account became unsustainable after 2009. China’s current account satisfied the strong form of sustainability between all sub-samples until 2014 and became unsustainable in the most recent four years (2015–2018). France, the Philippines, and the United States unequivocally failed the intertemporal solvency test in the full sample and sub-sample analyses. The cointegration tests allow for structural breaks in exports and imports. We find these breaks have strong economic significance. For instance, we find that for most countries the structural break in exports coincides with their worst economic recession.

scholarly journals Transportation Dynamic Behaviour of Structural Break and Consumer Price Index

2019 ◽  
Vol 8 (2) ◽  
pp. 283-290
Keyword(s):  
Unit Root ◽  
Structural Breaks ◽  
Price Index ◽  
Dynamic Behaviour ◽  
Structural Break ◽  
Consumer Price Index ◽  
Unit Root Test ◽  
Peninsular Malaysia ◽  
Cointegration Tests ◽  
Break Points

This paper studies the dynamic behaviour of transportation price in Peninsular Malaysia and Sabah from 2004 to 2015 using disaggregated monthly price data of consumer price index (CPI). For that, unit root tests and cointegration tests with structural breaks are incorporated. The findings indicated that (i) both Zivot and Andrews unit root test and Perron unit root test provided fairly similar results; most of the break points occurred in 2008, (ii) the variables cointegrate in the Johansen cointegration test which indicates that there is a long-run relationship and (iii) the Gregory and Hansen test also demonstrated some form of cointegration with structural break(s), especially in 2008. Overall, this study intends to match the structural break points with the comparable critical economic events

scholarly journals Explaining India’s current account deficit: a time series perspective

2019 ◽  
Vol 26 (1) ◽  
pp. 117-138
Author(s):  
Harendra Kumar Behera ◽  
Inder Sekhar Yadav
Keyword(s):  
Current Account ◽  
Unit Root ◽  
Current Account Deficit ◽  
Structural Break ◽  
Current Account Balance ◽  
Fiscal Deficit ◽  
Causality Test ◽  
Content Type ◽  
Financial Account ◽  
Cointegration Tests

Purpose The purpose of this paper is to examine the issue of high current account deficit (CAD) from various perspectives focussing its behaviour, financing pattern and sustainability for India. Design/methodology/approach To begin with the trends, composition and dynamics of CAD for India are analysed. Next, the influence of capital flows on current account is investigated using Granger non-causality test proposed by Toda and Yamamoto (1995) between current account balance (CAB) to GDP ratio and financial account balance to GDP ratio. Also, the sustainability of India’s current account is examined using different econometrics techniques. In particular, Husted’s (1992), Johansen’s cointegration and vector error correction model (VECM) is applied along with conducting unit root and structural break tests wherever applicable. Further, long-run and short-run determinants of the CAB are estimated using Johansen’s VECM. Findings The study found that the widening of CAD is due to fall in household financial savings and corporate investments. Also, it was found that a large part of India’s CAD has been financed by FDI and portfolio investments which are partly replaced by short-term volatile flows. The unit root and cointegration tests indicate a sustainable current account for India. Further, econometric analysis reveals that India’s current account is driven by fiscal deficit, terms of trade growth, inflation, real deposit rate, trade openness, relative income growth and the age dependency factor. Practical implications Since India’s CAD has widened and is expected to widen primarily due to rise in gold and oil imports, policy makers should focus on achieving phenomenal export growth so that a sustainable current account is maintained. Also, with rising working-age and skilled population, India should focus more on high-value product exports rather than low-value manufactured items. Further, on the structural side it is important to correct fiscal deficit as it is one of the important factors contributing to large CAD. Originality/value The paper is an important empirical contribution towards explaining India’s CAD over time using latest and comprehensive data and econometric models.

scholarly journals A macro assessment of China effects on Malaysian exports and trade balances

2014 ◽  
Vol 7 (1) ◽  
pp. 18-37 ◽  
Author(s):  
Tze-Haw Chan ◽  
Hooi Hooi Lean ◽  
Chee-Wooi Hooy
Keyword(s):  
Trade Balance ◽  
Structural Breaks ◽  
Structural Break ◽  
Analytical Framework ◽  
Trade Integration ◽  
Content Type ◽  
Regional Collaboration ◽  
Long Run ◽  
Cointegration Tests ◽  
The Impact

Purpose – This paper aims to focus on the impact of China's export expansion on Malaysian monthly trading with to her 12 major trading partners over the liberalization era. Design/methodology/approach – The analytical framework comprises of both the export and trade balance models. Unit root and cointegration tests with break and error correction modeling are employed in the analyses. Findings – Regime shifts are evident in the long run where structural break(s) found mostly coincides with the Asia crisis and China's accession into WTO. While the income effects are more apparent in most cases, the real exchanges are rather insignificant and incorrectly signed for Malaysian bilateral trading. Besides, the trade balance estimation is generally more consistent that the Chinese exports have exhibited complementary effects in the long-run, mainly for advanced export destination such as Australia, Germany, Japan, the UK and the USA. On the whole, there is insufficient evidence to support the “PRC competitive threat”. Practical implications – The empirical evidence disfavors currency devaluation for current account correction and reveals that the fear for China effect might be over-projected. Closer regional collaboration and trade integration between the two nations are well expected. Originality/value – The paper assesses the China's crowding out effect and magnitudes of Malaysian export and trade balance elasticities with model specifications that consider structural breaks. The paper also assesses the macro dimension of income and real exchanges effects.

scholarly journals Are Imports and Exports Cointegrated: the Case of Bulgaria between 1967 and 2004

2007 ◽  
Vol 2 (2) ◽  
pp. 53-56 ◽  
Author(s):  
Yannick Bineau
Keyword(s):  
Financial Crisis ◽  
Empirical Analysis ◽  
Current Account ◽  
Unit Root ◽  
Structural Breaks ◽  
Current Account Sustainability ◽  
Long Run ◽  
Cointegration Tests

Are Imports and Exports Cointegrated: the Case of Bulgaria between 1967 and 2004This note tests current account sustainability in Bulgaria from 1967 to 2004. Empirical analysis adopts various unit root and cointegration tests with structural breaks. Evidence of a long run relation between exports and imports in Bulgaria is shown, despite the financial crisis of 1996/8. Intertemporal current account constraint is not violated in Bulgaria.

scholarly journals Stochastic Dynamics of the COVID-19 Case-Fatality Ratios in Indonesia, Malaysia, and the Philippines: Economic Implications for the Post-COVID-19 Era

2021 ◽  
Vol 9 ◽  
Author(s):  
Zili Shi ◽  
Hua Zhang ◽  
Ren Zhang ◽  
Lili Zhu
Keyword(s):  
Unit Root ◽  
Structural Breaks ◽  
Stochastic Dynamics ◽  
Developing Economies ◽  
Structural Break ◽  
Case Fatality ◽  
The Philippines ◽  
Economic Implications ◽  
Daily Frequency ◽  
Permanent Effect

This paper analyses the stochastic dynamics of the COVID-19 Case-Fatality Ratios (CFR) in three developing economies in East Asia: Indonesia, Malaysia, and the Philippines. The sample covers the daily frequency data from April 28, 2020, to June 29, 2021. For this purpose, we utilize two unit root tests, which consider one structural break and two structural breaks. The findings reveal that the CFR follows a unit root process in Indonesia and the Philippines. However, the CFR is stationary in Malaysia. This evidence indicates that the COVID-19 has a permanent effect in Indonesia and the Philippines but temporary in Malaysia. The paper also discusses the potential economic implications of these results for the post-COVID-19 era in the related developing economies.

Is there any Long-run Relationship between India’s Current and Capital Account Balance? A Time Series Analysis

2012 ◽  
Vol 13 (3) ◽  
pp. 433-447 ◽  
Author(s):  
Debashis Chakraborty ◽  
Jaydeep Mukherjee ◽  
Tanaya Sinha
Keyword(s):  
Current Account ◽  
Structural Breaks ◽  
Research Question ◽  
Empirical Studies ◽  
Structural Break ◽  
Current Account Balance ◽  
Capital Account ◽  
Long Run ◽  
Account Convertibility ◽  
The Individual

The long-run relationship between current account balance (CAB) and capital account balance (KAB) and the repercussions of capital account convertibility (KAC) on the growth process of a country is a much-debated issue. In particular, in the aftermath of the Southeast Asian crisis, the limitation of the liberal capital regime for a developing country like India is often highlighted in the literature. However, the probable impact of introducing KAC on CAB in India is generally discussed theoretically. Though some empirical studies in India have recently focused on this research question, the current paper contributes to the literature first, by exploring the presence of any endogenous structural breaks in the individual series of CAB and KAB and then examining the nature of long-run relationship between them. Applying the ARDL method of co-integration, the empirical findings support the presence of a long term co-integrating relationship between capital and current account balance and reveals that a significant structural break is observed during 2002–03 for both the series.

scholarly journals On the Substitutability between Paid-employment and Self-employment: Evidence from the Period 1969–2014 in the United States

2019 ◽  
Vol 11 (2) ◽  
pp. 507
Author(s):  
Emilio Congregado ◽  
Antonio A. Golpe ◽  
Vicente Esteve
Keyword(s):  
Structural Breaks ◽  
Developed Countries ◽  
The United States ◽  
Elasticity Of Substitution ◽  
Us Economy ◽  
Self Employment ◽  
Paid Employment ◽  
Cointegration Tests ◽  
The Us ◽  
Employment Rates

This paper provides estimates of the elasticity of substitution between operational and managerial jobs in the US economy during the years 1969–2014, derived from an aggregate CES production function. Estimating the long-term relationship between (the log of) the aggregate employment/self-employment ratio and (the log of) the returns from paid-employment relative to self-employment and testing for structural breaks, we report different estimates of the elasticity of substitution in each of the two regimes identified. To this end we apply the methodology on instability tests proposed in Kejriwal and Perron (2008, 2010) as well as the cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008). Our results help to understand and interpret one of the most intriguing aspects in the evolution of self-employment rates in developed countries: the reversal of the trend in self-employment rates. Our estimates show that a higher level of development is associated with a greater number of entrepreneurs and smaller firms. Some rationales for understanding the growth of the elasticity between paid-employment and self-employment, including the recent trends in the digital economy, are also suggested.

scholarly journals The sustainability of current account in the presence of endogenous multiple structural breaks: Evidence from developed and developing countries

2016 ◽  
Vol 63 (3) ◽  
pp. 339-358
Author(s):  
Fikret Dülger
Keyword(s):  
Developing Countries ◽  
Current Account ◽  
Structural Breaks ◽  
Weak Form ◽  
Productivity Shocks ◽  
Long Run ◽  
Cointegration Tests ◽  
The Stability ◽  
Domestic Economies ◽  
The Relationship

The purpose of this study is to test for the sustainability of current account in 18 developed and 10 developing countries. The stability of the relationship between export (inflows) and import (outflows) is assessed using the tests proposed by Mohitosh Kejriwal and Pierre Perron (2010). In particular, the nature of the long-run relationship, when multiple regime shifts are identified endogenously, is analyzed using the residual-based test of the null hypothesis of cointegration with multiple breaks proposed by Kejriwal (2008). The results clearly indicate that, for all countries, (i) the stability tests reject the null of coefficient stability of the long-run relationship between exports and imports; (ii) the cointegration tests that correspond to the number of breaks selected reject the null of cointegration (weak form of sustainability); and (iii) the strong form of sustainability hypothesis is not supported by the data for all countries in most regimes but not for 20 of 28 countries especially in the last regime (the post-2000 era). For eight countries (Canada, New Zealand, Spain, Brazil, Mexico, South Africa, Thailand, and Turkey), the findings may be perceived as a warning to creditors and policymakers unless there are policy distortions or permanent productivity shocks to the domestic economies.

scholarly journals COINTEGRATION EVIDENCES FROM THE NEW FRAGILE FIVE

2020 ◽  
Vol 7 (3) ◽  
pp. 269-282
Author(s):  
Gülgün ÇİĞDEM ◽  
Merve ALTAYLAR
Keyword(s):  
Current Account ◽  
Structural Breaks ◽  
Current Account Deficit ◽  
Panel Data Analysis ◽  
External Debt ◽  
Panel Cointegration ◽  
Current Account Balance ◽  
Cointegration Tests ◽  
Cointegration Relationship ◽  
The Current Account

Purpose of this study is to test the association between savings and current account deficit of the “New Fragile Five” falling into critical cycle. 1994-2019 period annual national savings, current account balance and external debt have been analyzed within the framework of panel data analysis. At the modeling stage of the research focused on the cointegration relationship. Panel cointegration tests with structural breaks based on LM were used. To examine the unique economic structures of countries, heterogeneous estimating techniques were employed. The research has four important findings; i.There is a cointegration relationship between indicators, ii.The external debt increases the current account deficit, iii.The increase of savings in Turkey decreases the current account deficit, iv.An increase in savings increases the current account deficit in Argentina, Egypt, Pakistan and Qatar. This study, which will contribute to the expansion of typology, is also contributory to the “Triple Deficit Hypothesis”.

Sign in / Sign up

Export Citation Format

Share Document