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An Assessment of India’s Current Account Sustainability and Adjustment: A Nonlinear Framework

In: Studies in International Economics and Finance

Author

Listed:
  • Archana Kulkarni

    (Gokhale Institute of Politics and Economics (GIPE))

Abstract

We examine the nature of adjustment of the current account for India using quarterly data from 1996Q2 to 2019Q4. We find evidence of three types of nonlinearities—structural break, sign and size nonlinearity. Using a host of nonlinear unit root tests, we demonstrate that the ratio of current account to GDP for India is stationary. Nonlinearity and stationarity together imply that India’s current account is sustainable over the sample period and exhibits asymmetric adjustment. This may explain why the current account behaviour is characterized by persistent yet small deficits. We also estimate logistic smooth transition autoregressive and vector autoregressive models to examine the dynamics of the current account and the influence of other explanatory variables such as the exchange rate and interest rate on the current account.

Suggested Citation

  • Archana Kulkarni, 2022. "An Assessment of India’s Current Account Sustainability and Adjustment: A Nonlinear Framework," India Studies in Business and Economics, in: Naoyuki Yoshino & Rajendra N. Paramanik & Anoop S. Kumar (ed.), Studies in International Economics and Finance, pages 327-345, Springer.
    • Handle: RePEc:spr:isbchp:978-981-16-7062-6_18
    DOI: 10.1007/978-981-16-7062-6_18
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    More about this item

    Keywords

    Current account; Sustainability; Nonlinearity; Smooth transition; Adjustment; Open-economy macroeconomics;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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