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Cointegration and Asymmetric Adjustment: Some New Evidence Concerning the Behavior of the U.S. Current Account

Author

Listed:
  • Holmes Mark J.

    (Waikato University)

  • Panagiotidis Theodore

    (University of Macedonia)

Abstract

This study conducts an investigation into the extent of cointegration between imports and exports and asymmetries in the adjustment of the U.S. current account over the study period 1960Q4-2007Q2. We find evidence in favor of cointegration through the application of the standard Johansen methodology. Employing the Trace test procedure recursively, two distinct regimes are identified according to whether or not imports and exports are cointegrated. We also consider the Breitung (2002) and Breitung and Taylor (2003) nonparametric cointegration test procedures that do not assume linear short-run dynamics. Further analysis of the asymmetric short-run dynamics reveals that adjustment towards long-run equilibrium is primarily driven by U.S. exports responding to current account deficits.

Suggested Citation

  • Holmes Mark J. & Panagiotidis Theodore, 2009. "Cointegration and Asymmetric Adjustment: Some New Evidence Concerning the Behavior of the U.S. Current Account," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-25, June.
    • Handle: RePEc:bpj:bejmac:v:9:y:2009:i:1:n:23
    DOI: 10.2202/1935-1690.1665
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    References listed on IDEAS

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    1. Paul R. Krugman, 1985. "Is the strong dollar sustainable?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 103-155.
    2. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
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    Cited by:

    1. Andrea Civelli, 2016. "Excess Returns, Average Returns and the Adjustment Mechanism of the External Position of a Country," Review of International Economics, Wiley Blackwell, vol. 24(2), pages 226-252, May.
    2. Juan Carlos Cuestas, 2019. "The current account sustainability in Central and Eastern Europe: Has it changed?," Working Papers 2019/10, Economics Department, Universitat Jaume I, Castellón (Spain).
    3. Alexi Thompson & Henry Thompson, 2021. "Six decades of inflation and money demand," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(2), pages 240-251, April.
    4. Olufemi G. Onatunji, 2023. "Sustainability of current account deficits in Nigeria: evidence from the asymmetric NARDL approach," SN Business & Economics, Springer, vol. 3(10), pages 1-22, October.
    5. Juan Carlos Cuestas & Mercedes Monfort, 2021. "Current account sustainability in Central and Eastern Europe: structural change and crisis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(1), pages 141-153, February.
    6. Chen, Shyh-Wei & Xie, Zixiong, 2015. "Testing for current account sustainability under assumptions of smooth break and nonlinearity," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 142-156.
    7. Saten Kumar, 2016. "Is the US Consumer Credit Asymmetric?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(2), pages 194-215, May.
    8. Iordanis Petsas & Sofia M Vidalis, 2020. "The role of foreign investment in U.S. infrastructure: opportunities and challenges ahead," Economics and Business Letters, Oviedo University Press, vol. 9(3), pages 157-166.
    9. Mallick, Lingaraj & Behera, Smruti Ranjan & Murthy, R.V. Ramana, 2021. "Does the twin deficit hypothesis exist in India? Empirical evidence from an asymmetric non-linear cointegration approach," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    10. Harshana, P.V.S. & Ratnasiri, Shyama, 2023. "Asymmetric price transmission along the supply chain of perishable agricultural commodities: A nonlinear ARDL approach," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    11. Ahmad, Ahmad Hassan & Aworinde, Olalekan Bashir & Martin, Christopher, 2015. "Threshold cointegration and the short-run dynamics of twin deficit hypothesis in African countries," The Journal of Economic Asymmetries, Elsevier, vol. 12(2), pages 80-91.
    12. Kaufmann, Robert K., 2017. "Airfares and oil prices: ‘Feathers and Rockets’ adjustments," Energy Economics, Elsevier, vol. 68(C), pages 515-521.
    13. Chen, Shyh-Wei, 2014. "Smooth transition, non-linearity and current account sustainability: Evidence from the European countries," Economic Modelling, Elsevier, vol. 38(C), pages 541-554.

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    More about this item

    Keywords

    U.S. current account; sustainability; cointegration; structural changes; nonparametric cointegration; recursive Trace test statistic; recursive betas; asymmetric error correction;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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