EconPapers    
Economics at your fingertips  
 

Current account sustainability in G7 and BRICS: Evidence from a long-memory model with structural breaks

Christophe André, Mehmet Balcilar, Tsangyao Chang, Luis Gil-Alana and Rangan Gupta

The Journal of International Trade & Economic Development, 2018, vol. 27, issue 6, 638-654

Abstract: In this paper, we extend the existing literature on current account sustainability by examining the relevance of long memory and structural breaks in modelling the dynamics of current account to gross domestic product (GDP) ratios in G7 and BRICS. Unlike standard unit root tests, which have low power, especially in cases where the series is characterized by a fractional process, the long-memory approach provides an exact measure of the degree of persistence. However, long-memory models are known to overestimate the degree of persistence of the series in the presence of structural breaks. We show that regime changes do exist in both the mean and trend of the current account to GDP ratios. Thus, we test persistence allowing for both smooth and sharp breaks. Our methodology also allows any number of sharp breaks, whereas standard unit root tests only permit either one or two breaks. Hence, our approach is more general and more robust to misspecifications caused by the omission of breaks than standard methods. We show that current accounts are sustainable in both groups of countries, with the G7 and South Africa displaying long-memory behaviour.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1080/09638199.2017.1410853 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Current Account Sustainability in G7 and BRICS: Evidence from a Long Memory Model with Structural Breaks (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:27:y:2018:i:6:p:638-654

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RJTE20

DOI: 10.1080/09638199.2017.1410853

Access Statistics for this article

The Journal of International Trade & Economic Development is currently edited by Pasquale Sgro, David E.A. Giles and Charles van Marrewijk

More articles in The Journal of International Trade & Economic Development from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2023-09-16
Handle: RePEc:taf:jitecd:v:27:y:2018:i:6:p:638-654