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US external debt sustainability revisited: Bayesian analysis of extended Markov switching unit root test

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  • Takeuchi, Fumihide

Abstract

The sustainability of US external debt, which has been an issue of global concern, is analyzed using a Markov switching (MS) unit root test applied to the flow of debt, i.e., the current account. The first to apply the MS unit root test to the issue of US external debt in order to examine local stationarity and global stationarity were Raybaudi et al. (2004). This paper introduces an extended MS unit root test where the transition probability is time-varying rather than fixed, as is usually the case, and the change of probability is explained by the real exchange rate, which theory suggests has a close relationship with the external balance. The extended MS unit root test calculated by the Markov Chain Monte Carlo (MCMC) method provides us with new insights on the issue of US external debt in recent years, suggesting that even though the debt/current account-GDP ratio remains relatively high, the probability of stationarity (sustainability) is unexpectedly high when recent US dollar depreciation is taken into account.

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  • Takeuchi, Fumihide, 2010. "US external debt sustainability revisited: Bayesian analysis of extended Markov switching unit root test," Japan and the World Economy, Elsevier, vol. 22(2), pages 98-106, March.
    • Handle: RePEc:eee:japwor:v:22:y:2010:i:2:p:98-106
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    6. Ismet GOCER & Mehmet MERCAN, 2016. "Which country after Greece? Sustainability of budget deficits in selected EU countries: A panel cointegration analysis with multiple structural breaks under cross-section dependence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(608), A), pages 205-220, Autumn.
    7. Resat CEYLAN, 2018. "Kirilgan Beslide Cari Aciklarin Surdurulebilirligi: Dogrusal Olmayan Birim Kok Testleri Ile Kanitlar," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 18(1), pages 121-134.
    8. Cevik, Emrah Ismail & Dibooglu, Sel, 2013. "Persistence and non-linearity in US unemployment: A regime-switching approach," Economic Systems, Elsevier, vol. 37(1), pages 61-68.
    9. Evan Lau & Ahmad Zubaidi Baharumshah & Soon, 2013. "The behavior of external debt in Asian countries: evidence based on panel unit root tests," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(sup1), pages 377-394, June.
    10. Ly Dai Hung & Bui Thi Hai Anh & Vo Tri Thanh, 2022. "International Debts Flows," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 13(02), pages 1-22, June.
    11. 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.
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