Year: 2024
Type: article
Abstract: We propose a novel probability approach to examine the sustainability of the current account balance by generating density forecasts and calculating the probability that the current account balance will be lower than a specified threshold. We define a current account as sustainable by having a low probability of the current account deficit exploding. We use a vector autoregressive model to generate density forecasts up to five years ahead. We apply the method to ten countries that had high current account deficits in the past and find cases with both high and low probability of sustainability. We analyse historical episodes to illustrate the predictive capability of our framework and find that our method would have worked well in the past. We further find that the sustainability risk does not relate to whether the government or the private sector is the main driver of the deficit.
Source: Society and Economy
Author: Nwabisa Florence Ndzama
Institutions: Corvinus University of Budapest, Institute of Economics
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $970
OpenAlex ID: W4405290973