Are Current Account Imbalances Between EMU Countries Sustainable? Evidence from Parametric and Non-Parametric Tests

Christian Schoder, Christian R. Proaño and Willi Semmler
Authors registered in the RePEc Author Service: Christian R. Proaño

No 2011-6, SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

Abstract: Using parametric and non-parametric estimation techniques, we analyze the sustainability of the recently growing current account imbalances in the Euro Area and test whether the introduction of the European Monetary Union has aggravated these imbalances. For these purposes two alternative criteria for the assessment of external debt sustainability are considered: One based on intertemporal budget constraints as proposed by Bohn (1998), and the other based on the stationarity properties of the stochastic process of the debt-to-GDP ratio. The Bohn test is applied using the pooled mean-group estimator proposed by Pesaran and Smith (1995). Mean reversion is analyzed by the Breitung panel unit root test. Variants of both test procedures with time varying coercients using penalized splines estimation are performed. We find empirical evidence suggesting that the introduction of the EMU is associated with a regime shift from sustainability to unsustainability of external debt accumulation among the Euro countries considered.

Keywords: current account; external debt; imbalances; sustainability; EMU; non-parametric techniques (search for similar items in EconPapers)
JEL-codes: C14 F32 F34 F42 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.economicpolicyresearch.org/images/docs ... choder_WP_2011_6.pdf (application/pdf)

Related works:
Journal Article: ARE THE CURRENT ACCOUNT IMBALANCES BETWEEN EMU COUNTRIES SUSTAINABLE? EVIDENCE FROM PARAMETRIC AND NON‐PARAMETRIC TESTS (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:epa:cepawp:2011-6

Access Statistics for this paper

More papers in SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School Contact information at EDIRC.
Bibliographic data for series maintained by Bridget Fisher ().