 Current account sustainability in the US: What did we really know about it?Dimitris Christopoulos and Miguel Leon-Ledesma Journal of International Money and Finance, 2010, vol. 29, issue 3, 442-459 Abstract: We analyze the sustainability of the US current account (CA) deficit by means of unit-root tests. First, we argue that there are several reasons to believe that the CA may follow a non-linear mean-reversion behavior under the null of stationarity. Using a non-linear ESTAR model we can reject the null of non-stationarity favoring the sustainability hypothesis. Second, we ask whether unit-root tests are a useful indicator of sustainability by comparing in-sample results for the 1960-2004 period to the developments observed up to the end of 2008. We find that the non-linear model outperforms the linear and random walk models in terms of forecast performance. The large shocks to the CA observed in the last five years induced a faster speed of mean reversion, ensuring the necessary adjustment to meet the inter-temporal budget constraint. Keywords: Current; account; sustainability; Stationarity; Non-linear; models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:29:y:2010:i:3:p:442-459 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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