Current Account Sustainability in Latin America Considering Nonlinearities

Citation data:

Banco de la Republica de Colombia, Borradores de Economia, No: 987

Publication Year:
2017
Usage 87
Abstract Views 53
Downloads 34
Repository URL:
http://repositorio.banrep.gov.co/handle/20.500.12134/6299
RePec URLs:
https://ideas.repec.org/p/bdr/borrec/987.html
Author(s):
Ordoñez-Callamand, Daniel; Melo-Velandia, Luis Fernando; Valencia-Arana, Oscar Mauricio
Publisher(s):
Banco de la República de Colombia
Tags:
Corrección de errores de vector; Sostenibilidad de la balanza comercial; Función de respuesta de impulso generalizada; C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models; C52 - Model Evaluation, Validation, and Selection; F32 - Current Account Adjustment; Short-Term Capital Movements; Threshold vector error correction; Current account sustainability; Generalized impulse response function; Balanza de pagos -- Chile; Balanza de pagos -- Brasil; Balanza de pagos -- Colombia; Balanza de pagos -- México; Macroeconomía -- Chile; Macroeconomía -- Brasil; Macroeconomía -- Colombia; Macroeconomía -- México; F32 - Ajustes de la balanza por cuenta corriente; Movimientos de capital a corto plazo; C32 - Modelos de series temporales; Regresiones cuantiles dinámicas; Modelos dinámicos de tratamiento; procesos de difusión; representación de espacios de estados; C52 - Evaluación, contraste y selección de modelos; Threshold vector error correction; current account sustainability; generalized impulse response function
paper description
We test current account sustainability based on the framework developed by Hakkio and Rush [1991] and Husted [1992] using a two-regime threshold vector error correction model. This methodology allows us to characterize short-run nonlinearities in the current account. We estimate the model for four Latin American economies: Chile, Brazil, Colombia, and Mexico. We find a long-run relationship between the current account components, which implies strong sustainability for Chile and Mexico and weak sustainability for Colombia and Brazil. For the first two countries, the predominant regime is associated with a current account surplus. In contrast, for Colombia and Brazil, the prevailing regime corresponds to a situation in which there is a long- run deficit. In general, the impulse response analysis shows that expenditure and income shocks have positive and significant responses in the predominant regime for both series.