Abstract
In this paper we analyse the evolution of the current account as a percentage of GDP for a group of Central and Eastern European Countries. Instead of analysing only the variable for unit roots, we go a step further and test for different speeds of mean reversion dependent on break dates endogenously determined. We apply the Bai and Perron method to find that most countries have managed to balance their current account, but some of them should keep an eye on the low speed of mean reversion and the deviation of the time trend from balance.
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Notes
See Cuestas and Gil-Alana (2016) for other detrending methods.
In the “Appendix” we also show the results of estimating threshold equations. However, the results are not directly comparable with the time-break equation estimations.
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Acknowledgements
The authors gratefully acknowledge comments from an anonymous referee and the editor on an earlier draft. The usual disclaimer applies. Juan Carlos Cuestas acknowledges the financial support from the MINEIC-AEI-FEDER ECO2017-85503-R and ECO2017-83255-C3-3-P projects, both of them from ‘Ministerio de Economía, Industria y Competitividad’ (MINEIC), ‘Agencia Estatal de Investigación’ (AEI) Spain and ‘Fondo Europeo de Desarrollo Regional’ (FEDER). Mercedes Monfort is grateful for support from the University Jaume I research project UJI-B2017-33. The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank or the Eurosystem.
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Appendix
Appendix
As requested by an anonymous referee we provide estimates of the threshold equations, using as potential threshold variables gross domestic product (y), its first difference, and one lag, and the real effective exchange rate (rer) based on consumer price indexes against the 27 main trade partners, with its first differences and one lag. The estimated equation is similar to Eq. (2), but in this case, t is replaced by the threshold variable Th. The model choses the best threshold variable by using information criteria. The data for these two variables are also obtained from Eurostat. The results, displayed in Table 5, show that depending on the case, the threshold may depend on either of those variables. However, these results are not directly comparable with those of Table 4.
In general, though with a few exceptions, we find that the larger the y/rer or the change in them, the faster the mean reversion of the current account is to equilibrium.
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Cuestas, J.C., Monfort, M. Current account sustainability in Central and Eastern Europe: structural change and crisis. Empirica 48, 141–153 (2021). https://doi.org/10.1007/s10663-020-09473-7
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DOI: https://doi.org/10.1007/s10663-020-09473-7