Sustainability of external imbalances in the OECD countries

In this paper, we provide a test of the sustainability of external imbalances in the OECD countries, over the years 1970-2007. Specifically, we deal with the case of those countries that have experienced current account deficits in more than half of the years throughout the period of analysis, and address the recent critique of Bohn (2007) on unit root and cointegration tests of the intertemporal budget constraint. In addition, we test for the possible presence of structural changes occurring along the period by means of the new approach of Kejriwal and Perron (2008, 2010).