A Note on the Current Account Sustainability of European Transition Economies

Juan Carlos Cuestas

Abstract

This paper analyses 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, current account may yield stabilities in the former fundamental macroeconomic variables. Hence, this analysis is of paramount importance given the 2008-2011 debt crises faced by many European economies, and the addition of new EU countries to the EMU. By means of unit root tests and fractional integration it shows that, in general, the ratio of current account to gross domestic product is a stationary and mean reverting process, although 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.