The sustainability of the current account in the Czech Republic, Hungary and Slovenia

Abstract

Current account, Intertemporal budget constraint, Cointegration, Central Europe, C32, F41, P24,

Sustainability of current account deficits in India: an intertemporal perspective

“…The transversality condition determines the equilibrium path of external imbalances and limits the borrowing over an infinite time horizon to zero so that r lim n!1 δ nþ1 B tþn ¼ 0 (see Konya, 2009). By imposing the no-Ponzi games limiting condition and letting import index…”

“…The country would be beset with debt overhang and be 'bubble financing' its debt repayments using the Ponzi schemes, if the present value of foreign debt outstanding at the end of time t exceeds the sum of the discounted values of all future net trade surpluses. The empirical evidence across countries remains mixed in that some studies support the sustainability of CADs and validity of IBC (Trehan and Walsh, 1991;Husted, 1992;Bergin and Sheffrin, 2000;Arize, 2002;Matsubayashi, 2005), (ii) some suggest the unsustainability of CADs and violation of IBC (Otto, 1992;Wickens and Uctum, 1993;Wu et al, 1996) and (iii) yet some others yield mixed results (Sawada, 1994;Raybaudi et al, 2004;Holmes, 2006;Konya, 2009;Holmes et al, 2011).…”

“…The transversality condition, lim β n n!1 B tþn ¼ 0, on external borrowing must be satisfied for a country to be solvent and have zero-Ponzi financing and no rollovers of external deficits (Husted, 1992;Konya, 2009). The present value of foreign debt outstanding at the end of time t should be equal to the sum of the discounted values of all future net trade surpluses.…”

“…Consider a small open economy where the forwardlooking optimizing agents can borrow and lend resources in the international financial markets at the world rate of interest and maximize their lifetime utility function subject to the budget constraint (Husted, 1992;Konya, 2009). The aggregate resources are equal to aggregate expenditure at the end of a discrete time t such that the current-period budget constraint with no government can be represented as…”

The sustainability of trade balances in sub-Saharan Africa: panel cointegration tests with cross-section dependence

“…Irandoust and Ericsson (2004) examine a cointegrating relationship between exports and imports for six countries-Germany, Sweden, the USA, France, Italy and the UK-and conclude that these were cointegrated in the first three countries; consequently, their trade imbalances were short-run phenomena. Most recently, Konya (2009) These earlier studies have applied individual unit root and cointegration tests to each country's time series data. However, it is well known that these tests lack power with small samples.…”