Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

摘要

This study estimates the intertemporal model for therelationship between exports and imports and examinesthe sustainability of current account deficits (CADs) andthe validity of intertemporal budget constraint for 24Organisation for Economic Co‐operation and Developmentcountries. The standard ordinary least squares (OLS)‐basedtwo‐step Engle and Granger test, the cointegration regressionDurbin–Watson (CRDW) test, and the Stock–Watsontest performed on the one‐regime model with time‐invariantparameters and no structural break provide mixed supportfor the presence of cointegration between exports andimports. The recursive least squares‐based cumulative sumof recursive residuals (CUSUM) and the cumulative sum ofsquares of recursive residuals (CUSUMSQ) tests and theOLS‐based Andrews‐Quandt (AQ) and Andrews – Ploberger(AP) tests suggest the presence of structural breaks in thelong‐run relationship between exports and imports for anumber of countries. The end‐of‐sample new cointegrationbreakdown tests performed on the OLS, fully modified OLS,and full‐information maximum‐likelihood estimates of themodel suggest the presence of cointegration betweenexports and imports for most countries. The dominantsupport for cointegration between trade flows pointstoward the sustainability of CADs and the validity ofintertemporal budget constraint. The macroeconomic stabilizationpolicies seem to have been effective in correcting the market failures and maintaining the steady‐stateequilibrium relationship between trade flows in the samplecountries. The findings of this study have importantimplications for empirical research. The structural breaksin the cointegrating vector could occur even over the shorttime periods and at any point in time. It is essentiallyimportant to assess the sustainability of the externalposition in the presence of long‐period as well as shortperiodbreaks in the cointegrating vector.