Skip to main content

An analysis of the trade balance for OECD countries using periodic integration and cointegration

Abstract

We analyze imbalances in external accounts that have historically affected most developed countries. The purpose of this study was to shed some light on the sustainability of the current account for a group of OECD countries by merging the popular Husted (Rev Econ Stat 74(1):159–166, 1992) testing procedure with recent econometric analysis dealing with seasonality. A necessary condition for current account sustainability is that exports and imports are cointegrated. Following previous empirical studies (Husted 1992; Arize in Int Rev Econ Financ 11:101–115, 2002; Hamori in Appl Econ Lett 16:1691–1694, 2009), we analyze the long-run relationship linking exports and imports, using quarterly data. In contrast to these studies, we explicitly deal with seasonal effects through the use of periodic integration and cointegration and find a long-run relationship for the majority of the countries.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2

Notes

  1. See also Kunst (1997) and Osborn et al. (1988) for alternative methods of testing for seasonal unit roots.

  2. In Gersovitz and McKinnon (1978) it is also possible to find arguments in favor of the use Periodic Autoregressive models.

  3. The presence of a level shift recommends the use of unit root tests that explicitly allow for it in the alternative hypothesis. This will be the object of future research.

  4. See Ghysels and Osborn (2001, pp. 153–155) for details about the models nested in (4)/(5)

  5. We have not applied these procedures to our data because these methods perform well in this context for sample sizes of around 75 years in the case of the Johansen tests and 100 years in the case of the Breitung tests.

  6. The role played by intercepts and trends in periodically integrated processes is more complicated than in the case of standard integrated processes. For an in-depth analysis of this, see Paap and Franses (1999)

  7. Following the suggestion of one referee, we have conducted the cointegration analysis for the annual data using the Johansen procedure and Engle and Granger two steps approach. The results are available upon request from the authors. As expected, it is possible to say the aggregation process do not alter the long-run relationships between the analyzed variables.

References

  • Alterman WF, Diewert WE, Feenstra RC (1999) International trade price indexes and seasonal commodities. Bureau of Labor Statistics, Washington

    Google Scholar 

  • Arize AC (2002) Imports and exports in 50 countries. Tests of cointegration and structural breaks. Int Rev Econ Financ 11:101–115

    Article  Google Scholar 

  • Balk BM (1980) A method for constructing price indices for seasonal commodities. J R Stat Soc A Stat 143:68–75

    Article  Google Scholar 

  • Boswijk HP, Franses PH (1995) Periodic cointegration: representation and inference. Rev Econ Stat 77: 436–454

    Article  Google Scholar 

  • Boswijk HP, Franses PH (1996) Unit roots in periodic autoregressions. J Time Ser Anal 17:221–245

    Article  Google Scholar 

  • Breitung J (2002) Nonparametric tests for unit roots and cointegration. J Econom 108:343–363

    Article  Google Scholar 

  • del Barrio Castro T, Pons E, Suriach J (2002) The effects of working with seasonal adjusted data when testing for unit roots. Econ Lett 75:249–256

    Article  Google Scholar 

  • del Barrio Castro T, Osborn DR (2008) Cointegration for periodically integrated processes. Econom Theory 24(1):109–142

    Google Scholar 

  • del Barrio Castro T, Osborn DR (2011) Nonparametric tests for periodic integration. J Time Ser Econom 3(1), Article 4

  • del Barrio Castro T, Osborn DR (2012) Non-parametric testing for seasonally and periodically integrated processes. J Time Ser Anal 33:424–437

    Article  Google Scholar 

  • Diewert WE (1998) High inflation, seasonal commodities and annual index numbers. Macroecon Dyn 2:456–471

    Article  Google Scholar 

  • Franses PH (1994) A multivariate approach to modeling univariate seasonal time series. J Econom 63: 133–151

    Article  Google Scholar 

  • Franses PH, Paap R (1994) Model selection in periodic autoregression. Oxf B Econ Stat 56:421–440

    Article  Google Scholar 

  • Franses PH, Paap R (2004) Periodic time series models. Oxford University Press, Oxford

    Book  Google Scholar 

  • Gersovitz M, McKinnon JG (1978) Seasonality in regression: an application of smoothness priors. J Am Stat Assoc 73:264–273

    Article  Google Scholar 

  • Ghysels E (1990) Unit-root tests and the statistical pitfalls of seasonal adjustment: the case of U.S. postwar real gross national product. J Bus Econ Stat 8(2):145–152

    Google Scholar 

  • Ghysels E, Perron P (1993) The effect of seasonal adjustment filters on tests for unit roots. J Econom 55:57–99

    Article  Google Scholar 

  • Ghysels E, Osborn DR (2001) The econometric analysis of seasonal time series. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Gourinchas PO, Rey H (2007) International financial adjustment. J Polit Econ 115(4):665–703

    Article  Google Scholar 

  • Gupta JB (1965) Seasonality in world financial and trade data. IMF Staff Pap 12:353–364

    Article  Google Scholar 

  • Hamori S (2009) The sustainability of trade accounts of the G-7 countries. Appl Econ Lett 16:1691–1694

    Article  Google Scholar 

  • Hansen LP, Sargent TJ (1993) Seasonality and approximation errors in rational expectation models. J Econom 55:21–55

  • Husted S (1992) The emerging U.S. current account deficit in the 1980s: a cointegration analysis. Rev Econ Stat 74(1):159–166

    Article  Google Scholar 

  • Hylleberg S (1995) Tests for seasonal unit roots: general to specific or specific to general? J Econom 69(1):5–25

    Article  Google Scholar 

  • Hylleberg S, Engle R, Granger CWJ, Yoo BS (1990) Seasonal integration and co-integration. J Econom 44(1–2):215–238

    Article  Google Scholar 

  • IMF (2004) Treatment of seasonal products. In: Producer price index manual, Chapter 22. IMF, Washington

  • Johansen S (1988) Statistical analysis of cointegration vectors. J Econ Dyn Control 12:231–254

    Article  Google Scholar 

  • Johansen S, Schaumburg E (1998) Likelihood analysis of seasonal cointegration. J Econom 88(2):301–339

    Article  Google Scholar 

  • Kunst R (2009) A nonparametric test for seasonal unit roots, Economic Series 233. Institute for Advanced Studies

  • Kunst R (1997) Testing for cyclical non-stationarity in autoregressive processes. J Time Ser Anal 18: 123–135

    Article  Google Scholar 

  • Lee HS (1992) Maximum likelihood inference on cointegration and seasonal cointegration. J Econom 54(1–3):1–47

    Article  Google Scholar 

  • Maravall A (1993) Stochastic linear trends. J Econom 56:5–37

  • Mitchell WC (1927) Business cycles. National Bureau of Economic Research, New York

    Google Scholar 

  • Newey WK, West KD (1994) Automatic lag selection in covariance matrix estimation. Rev Econ Stud 61:631–653

    Article  Google Scholar 

  • Osborn DR (1988) Seasonality and habit persistence in a life-cycle model of consumption. J Appl Econom 3:255–266

    Article  Google Scholar 

  • Osborn DR (1991) The implications of periodically varying coefficients for seasonal time series. J Econom 28:323–384

    Google Scholar 

  • Osborn DR, Chui PL, Smith JP, Birchenhall CR (1988) Seasonality and the order of integration for consumption. Oxf B Econ Stat 50:361–377

    Article  Google Scholar 

  • Paap R, Franses PH (1999) On trends and constants in periodic integration. Econom Rev 18:271–286

    Article  Google Scholar 

  • Perron P, Ng S (1996) Useful modifications to some unit root tests with dependent errors and their local asymptotic properties. Rev Econ Stud 63:435–463

  • Phillips PCB, Ouliaris S (1988) Testing for cointegration using principal components methods. J Econ Dyn Control 12(2–3):205–230

  • Rodrigues PMM, Taylor AMR (2007) Efficient tests of the seasonal unit root hypothesis. J Econom 141: 548–573

    Article  Google Scholar 

  • Sargan JD, Bhargava A (1983) Testing for residuals from least squares regression being generated by Gaussian random walk. Econometrica 51:153–157

    Article  Google Scholar 

  • Stock JH (1999) A class of tests for integration and cointegration. In: Engle RF, White H (eds) Cointegration, causality and forecasting. A Festchrift in Honour of Clive W.F. Granger. Oxford University Press, Oxford

    Google Scholar 

Download references

Acknowledgments

We thank Denise R. Osborn for her helpful suggestions on a previous version of this paper, and also the constructive comments of two anonymous referees and the editor of the Journal. The authors gratefully acknowledge financial support from MICINN (Projects ECO2011-23934 and ECO2011-30260-C03-01). The paper has been finished during a stay of C. Tamarit at the University of Goettingen funded by the Spanish Ministry of Education mobility programme (Grant Ref. PRX12/00103). C. Tamarit and M. Camarero are members of INTECO research group funded by Generalitat Valenciana, PROMETEO 2009/098 project as well as the European Commission (Lifelong Learning Program-Jean Monnet Action references 542457-LLP-1-2013-1-ES-AJM-CL and 542434-LLP-1-2013-1-ES-AJM-CL). This publication reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Cecilio Tamarit.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

del Barrio Castro, T., Camarero, M. & Tamarit, C. An analysis of the trade balance for OECD countries using periodic integration and cointegration. Empir Econ 49, 389–402 (2015). https://doi.org/10.1007/s00181-014-0874-y

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00181-014-0874-y

Keywords

  • Current account
  • Time series
  • Periodic integration
  • Periodic cointegration

JEL Classification

  • F14
  • F32
  • C22