The Current Account Sustainability of European Transition Economies

Abstract

This article presents an analysis of the sustainability of the current accounts of a group of central and eastern European countries. Given the link between national savings (public and private) and investment, the current account may yield instabilities in fundamental macroeconomic variables. Hence, this analysis is of paramount importance given the 2008–11 debt crises faced by many European economies, and the addition of new countries to the economic and monetary union. By means of unit root tests and fractional integration it is shown that, in general, the ratio of the current account to gross domestic product is a stationary and mean reverting process. However, in some cases, shocks tend to have long-lasting effects, implying that there is no evidence of a potential debt default in this group of countries.