Red Signals: Trade Deficits and the Current Account

Marzia Raybaudi, Martin Sola and Fabio Spagnolod

Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: This paper proposes a method to asses the potential problems of sustainability of a country’s sovereign debt. We claim that the relevant variables used for this analysis are typically subject to changes which are associated with changes in macroeconomics policies. We propose a procedure for identifying periods under which the trade deficit and the current account accumulate at a nonstationary rate. Our approach is based on imposing identifying restrictions on Markov switching type models. An empirical application of the procedure to UK data is examined and discussed.We find that periods of non-stationary trade deficits typically coincide with current account crises.

Pages: 8 pages
Date: 2003-05
New Economics Papers: this item is included in nep-ifn and nep-reg
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Working Paper: Red Signals: Trade Deficits and the Current Account (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:bru:bruppp:03-14

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