The Current Account Sustainability of European Transition Economies

Abstract

This article presents an analysis of the sustainability of the current accounts of a group of central and eastern European countries. Given the link between national savings (public and private) and investment, the current account may yield instabilities in fundamental macroeconomic variables. Hence, this analysis is of paramount importance given the 2008-11 debt crises faced by many European economies, and the addition of new countries to the economic and monetary union. By means of unit root tests and fractional integration it is shown that, in general, the ratio of the current account to gross domestic product is a stationary and mean reverting process. However, in some cases, shocks tend to have long-lasting effects, implying that there is no evidence of a potential debt default in this group of countries.

Have export compositions influenced economic growth of the European Union countries in Central and Eastern Europe?

“…Curact is the current account balance which is equal to the sum of net exports of goods and services, net primary income, and net secondary income as a share of the CEE GDP. The current account deficit would incur heavy financial burden on interest repayment, which eventually would lead to major debt default in the CEE countries (Cuestas, 2013). Moreover, the persistent current account deficit would make their economies more volatile to external economic shocks.…”

“…The current account deficit has incurred high financial burden on interest payment which has resulted in debt default (Cuestas, 2013). This lowered their economic growth during the early EU period 2004-2008.…”

Determinants of the Current Account Balances among Central and Eastern European Countries in the European Union

“…The greater foreign bank credits have facilitated the larger current account deficits in these countries. More importantly, the growing debt accumulations would lead to high interest repayments, which would impose a heavy debt burden on future generations 2 . The persistent current account deficits would raise the possibility of major debt default.…”

Testing for current account sustainability under assumptions of smooth break and nonlinearity

“…1 See, for example, Chortareas, Kapetanios, and Uctum, (2004), Raybaudi, Sola, and Spagnolo (2004), Holmes and Panagiotidis (2009), Kim, Min, and McDonald (2009), Christopoulos and León-Ledesma (2010), Takeuchi (2010), Chen (2011a,b), Cuestas (2013), Gnimassoun and Coulibaly (2014) and Cecen and Xiao (2014).…”