IS THE BALANCING ITEM FOR AUSTRALIA SUSTAINABLE? EVIDENCE FROM A THRESHOLD AUTOREGRESSIVE MODEL WITH AN AUTOREGRESSIVE UNIT ROOT

Vinod Mishra, Russell Smyth () and Tuck Cheong Tang

Australian Economic Papers, 2008, vol. 47, issue 2, pages 190-198

Abstract: This article applies an unrestricted two-regime threshold autoregressive (TAR) model with an autoregressive unit root to examine the sustainability of the balancing item of the balance of payments for Australia from the first quarter 1960 to the second quarter 2006. The main finding is that the balancing item of the balance of payments in Australia is characterised by a non-linear, but stationary, series meaning that the balancing item is sustainable. This result implies that short-run volatility in the balancing item has no effect on the reliability of reporting of the balancing item in the long-run. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

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