An Assessment of India’s Current Account Sustainability and Adjustment: A Nonlinear Framework

Archana Kulkarni ()
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Archana Kulkarni: Gokhale Institute of Politics and Economics (GIPE)

A chapter in Studies in International Economics and Finance, 2022, pp 327-345 from Springer

Abstract: Abstract We examine the nature of adjustment of the current account for India using quarterly data from 1996Q2 to 2019Q4. We find evidence of three types of nonlinearities—structural break, sign and size nonlinearity. Using a host of nonlinear unit root tests, we demonstrate that the ratio of current account to GDP for India is stationary. Nonlinearity and stationarity together imply that India’s current account is sustainable over the sample period and exhibits asymmetric adjustment. This may explain why the current account behaviour is characterized by persistent yet small deficits. We also estimate logistic smooth transition autoregressive and vector autoregressive models to examine the dynamics of the current account and the influence of other explanatory variables such as the exchange rate and interest rate on the current account.

Keywords: Current account; Sustainability; Nonlinearity; Smooth transition; Adjustment; Open-economy macroeconomics (search for similar items in EconPapers)
JEL-codes: C22 C24 C32 F32 F41 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-16-7062-6_18

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DOI: 10.1007/978-981-16-7062-6_18

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