Current account: mean-reverting or random walk behavior?

Lau, Evan and Ahmad Zubaidi, Baharumshah and Chan, Tze Haw (2006) Current account: mean-reverting or random walk behavior? Japan and the World Economy, 18 (1). pp. 90-107. ISSN 0922-1425

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Abstract

This paper sets out to investigate the statistical properties of current account in the crisis-affected countries of East Asian (Asian-5: Indonesia, Korea, Malaysia, the Philippines and Thailand) utilizing data from 1976Q1 to 2001Q4. We split the full sample period into two sub-periods of the pre-crisis (1976Q1–1996Q4) and post-crisis (1997Q1–2001Q4) eras. Univariate unit root tests indicate that current account follows a non-stationary process under both eras. However, using more sophisticated panel techniques revealed that the current account displays mean-reverting property in all three sampling periods. Meanwhile, deviations of half-life estimates in the full sample period (post-crisis) were found to be much more rapid compared to the pre-crisis period. Our major conclusions are first, the empirical evidence supports the modern intertemporal approach to current account. Second, the results reveal that the Asian-5 current accounts were on a sustainable path, even during the pre-crisis period, hence, questioning the notion that the East Asian financial crisis was due to the mismanagement of external imbalances.

Item Type: Article
Uncontrolled Keywords: Current account; Mean reversion; Unit root tests; Sustainability; Asian-5; Half-lives, unimas, university, universiti, Borneo, Malaysia, Sarawak, Kuching, Samarahan, ipta, education, research, Universiti Malaysia Sarawak
Subjects: H Social Sciences > HB Economic Theory
Divisions: Academic Faculties, Institutes and Centres > Faculty of Economics and Business
Depositing User: Karen Kornalius
Date Deposited: 06 May 2015 07:31
Last Modified: 14 Apr 2016 00:29
URI: http://ir.unimas.my/id/eprint/7147

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