Current account sustainability: A non-linear comparative empirical overview

Abstract

This study aims to examine the sustainability of current account deficits for Hungary, Poland, Czech Republic and Turkey over the period 1998Q1:2014Q2, with a special attention to the Turkish case, by applying the theoretical model of Steven Husted (1992). The main motive for the choice of time span is that the period comprises the outcomes of two important crises Turkish economy experienced in 2001 and 2008. The empirical testing procedure of the sustainability is twofold so as to be linear and non-linear. Both linear and non-linear test results provide evidence that the current account deficit is unsustainable for Turkey, Poland and Czech Republic. On the other hand, linear and non-linear test results lead to a conflicting evidence for Hungary. We conclude that there is a need to reduce the current account deficit for the countries examined. Otherwise, a sharp adjustment may be inevitable.