Current-account breaks and stability spells in a global perspective

Alfonso Camba-Crespo, José García-Solanes and Fernando Torrejón-Flores

Applied Economic Analysis, 2021, vol. 30, issue 88, 1-17

Abstract: Purpose - This study aims to identify structural breaks in the current account and the periods between these breaks, which the authors name stability spells, and study their characteristics and determinants. Design/methodology/approach - Using data from the IMF and the World Bank, this study applies the Lee and Strazicich test to endogenously identify breaks and the Heckman selection model to simultaneously study the determinants of structural breaks and current-account changes after breaks. Findings - This study identifies 212 significant structural breaks and 341 stability spells. These spells become shorter and more volatile the further they are from equilibrium, and half of them last 10 years or less. The results show that economic growth and foreign-exchange piling are particularly useful to prevent breaks, while lower per capita income increases exposure to break risks. Originality/value - This study introduces the concept of current-account stability spells to refer to the periods between structural breaks. These spells are then studied to determine their main characteristics. The authors also apply a global perspective in their analysis, using a wide sample of 181 economies between 1980 and 2018 and considering positive and negative breaks in both level and trend.

Keywords: Current-account breaks; Current-account stability spells; Selection model; Unit-root test with structural changes; F32; F40; F41; F49 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aeapps:aea-02-2021-0029

DOI: 10.1108/AEA-02-2021-0029

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