Red Signals: Current Account Deficits and Sustainability

Posted: 5 Dec 2004

See all articles by Fabio Spagnolo

Fabio Spagnolo

Brunel University London - Economics and Finance

Martín Sola

Universidad Torcuato Di Tella; University of London - Economics, Mathematics and Statistics

Marzia Raybaudi-Massilia

Universidad Torcuato Di Tella - Departamento de Economia

Abstract

This paper proposes a method to asses the potential problems of sustainability of a country's sovereign debt. We claim that the relevant variables used for this analysis are typically subject to changes which are associated with changes in macroeconomics policies. We propose a procedure for identifying periods under which the current account accumulates at a non-stationary rate. Our approach is based on imposing identifying restrictions on Markov switching type models. Empirical applications of the procedure to Argentina, Brazil, Japan, UK and USA are examined and discussed.

Keywords: Deficits sustainability, Markov Switching

JEL Classification: C22, E31, G12

Suggested Citation

Spagnolo, Fabio and Sola, Martín and Raybaudi-Massilia, Marzia, Red Signals: Current Account Deficits and Sustainability. Economics Letters, Vol. 84, pp. 217-223, 2004. Available at SSRN: https://ssrn.com/abstract=626844

Fabio Spagnolo

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 816383 (Phone)
+44 1895 203303 (Fax)

HOME PAGE: http://www.brunel.ac.uk/depts/ecf/Staff/SpagnoloF/Main.htm

Martín Sola (Contact Author)

Universidad Torcuato Di Tella ( email )

Minones 2159
1428 Buenos Aires, 1428
Argentina
5411 4784 0080 (Phone)
5411 4784 9807 (Fax)

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom
+44 20 7631 6411 (Phone)
+44 20 7631 6416 (Fax)

HOME PAGE: http://www.econ.bbk.ac.uk/faculty/sola/

Marzia Raybaudi-Massilia

Universidad Torcuato Di Tella - Departamento de Economia ( email )

Minones 2177
1428 Buenos Aires
Argentina

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